For many years, Kelantan made its own gold coins and promoted it as real money

In the last couple of weeks or so, Prime Minister Mahathir proposed a pretty daring plan to initiate a new Asia-based gold-backed currency. It stirred up a number of headlines and even caused some economists to speculate whether or not it’ll even work. You can read more about that idea here laa.

But, for some of you who have some super ginkgo-enhanced memory, you might recall that this isn’t the first time Malaysia has dabbled and teased with the idea of a new currency based on gold. In fact, this isn’t even the second time! But the gold-based currency previously proposed for Malaysia isn’t one that’s tied to the price of gold, but rather… actual gold coins?

Both Mahathir and Kelantan wanted a new currency based on Islamic gold coins

So first off the bat, we should probably explain what this Islamic gold coins are. *wears Sejarah hat*

Called the ‘gold dinar’, these coins can be traced back to the medieval Byzantine empire. While the gold dinar and the silver dirham were already used prior to Islam, the Prophet approved and continued the use of these coins as currency. Gold dinars would be set at the weight of 72 grains of barley, or around 4.44 grams of gold. The silver dirham meanwhile is around 3.11 grams, and 7 gold dinar equals 10 silver dirhams.

The idea of a modern version of the dinar to replace your paper money came about thanks to Mahathir, near the end of this first tenure as Prime Minister. Dr M proposed the new gold coins as a currency for the Muslim world in the years following the 1997 Asian financial crisis. Mahathir argued that this modern Islamic gold dinar would be way more resistant to market fluctuations, especially when compared to the USD. He even suggested it to the Organisation of the Islamic Conference. However, while some countries like Iran were interested, his successor Abdullah Badawi cancelled the plan before it took off.

That wasn’t the end of the gold dinar in Malaysia tho. In 2006, the Kelantan state govt announced plans to introduce its own version of the gold dinar and silver dirham as legal tender currency. The Kelantan state govt did say tho that the new gold and silver currencies aren’t meant to replace the ringgit, but rather would first be used it the state’s Islamic system of pawn broking. However, the then-PM Abdullah Badawi quickly dismissed the idea again.

Kelantan tho wasn’t done with the idea, and in 2010, they struck back, this time with fully minted coins too.

Kelantan wanted to pay its public servants using the dinar

The story goes that in 2010, the Muamalah Council – a group lobbying for the introduction of an Islamist socio-economic system – convinced the Kelantan state govt and the PAS party to begin implementation of the new dinar currency. It seems as tho this time round they even got approval to make and regulate these coins from the World Islamic Mint, an authorised organisation for dealing with the dinar and dirham.

And it was reported that in order to get the dinar system up and moving, they apparently tried to pay a quarter of the salaries of civil servants in the form of dinar. Following that, they would get all state companies to accept the dinar. This was followed by hundreds of commercial businesses also accepting the dinar, with a reported 3000 shops accepting the dinar for trade by 2011. The goal was essentially to be able to use the gold and silver coins to pay for stuff there. Imagine the size of the wallets in Kelantan ( ͡ಠ ʖ̯ ͡ಠ)

The move was seen as a way for PAS to show that it was committed to institutionalising its religious programs and agenda. Some even saw the dinar as a Muslim answer to capitalism. While there were a few Kelantanese proud of the ‘first time in 100 years that a Muslim govt introduced a syariah currency‘, others such as then-Kelantan state exco member Datuk Huzam Musa said that the coins were just an alternative for barter. As for their plan for paying civil servants in dinar, we couldn’t find anything that confirms it actually happened so take it with a grain of MSG we guess. Bank Negara meanwhile also wasn’t please, maintaining that the only legal tender for payment was and still is the ringgit. Not only are they not legal tender, but it’s also goes against the Federal Constitution.

See the Federal Constitution has a section that defines what issues are handled by the national govt and what issues are handled by the state govts. For eg, states deal with stuff like land and water, while the federal govt handle stuff like citizenship and – surprise, surprise – currency. With the Kelantan govt trying to push their coins as legal tender and the federal govt saying no, Article 75 of the Federal Constitution pretty much states that the federal laws overrule state laws that don’t match up.

These days tho, we couldn’t find much that call the dinar “legal tender” in Kelantan. An article from December 2015 highlighted that a new version of the Kelantan dinar appeared that year, and that it was also apparently acceptable at Islamic pawn brokers. You can however still buy the dinar and dirham today, except this time it’s worth its weight in gold – literally. It’s more or less marketed as a form of investment and savings by holding real gold rather than currency these days. Perak too did the same by introducing the dinar for savings purposes a year after Kelantan.

In any case, for the Kelantan dinar, unless the Federal Constitution itself is changed, we might not see a dinar as legal tender in the state anytime soon.