FCN 1/20/98
Perspectives
Toward An
Islamic Gold Standard
-Part II-
by Cedric Muhammad
-Guest Columnist-
Click Here for Part I
By forming an International Islamic Central Bank and issuing its own gold-backed currency notes the Islamic world could establish the most stable money system on earth, but would it be credible? Yes. The enormous mass of the Muslim nations--10,450,000 square miles, a 1 billion member population, the combined Gross National Product of all of the Muslim nations and the blessing of having much of the world's oil supply running beneath its feet--would give the Islamic gold backed-currency all the credibility it would need.
Most people outside of political and economic circles do not realize that since 1945 it has only been possible to purchase oil with U.S. dollars. This creates a guaranteed demand for dollars that no other currency in the world can claim. The fact that oil is denominated in dollars (meaning you have to use dollars to purchase oil) means that people will always need dollars if they want oil. This is one factor that make the dollar so unique.
The oil-producing nations ask for dollars because the dollar is the strongest currency in the world, but nothing is stopping the oil-producing nations from asking for another currency in exchange for oil. If the oil-producing nations with significant Muslim populations were to ask for their oil payments in the form of an Islamic currency, all the strength and purchasing power that the dollar gains from being the oil-producers' currency of choice would now switch to an Islamic gold-backed currency.
Andrew Gause of SDL Inc., one of the most widely-known rare-coin dealers in America and author of "The Secret World of Money", told The Final Call, "An Islamic bloc that could get together possibly with the non-Muslim OPEC nations, regulate their flow of oil and only accept payment for oil in a commonly-issued currency, would really be a power base, a power base that I don't think could be competed with."
But Gause stresses the goal of an Islamic-issued currency is not to control oil; the goal is to establish a strong and stable currency that can be used to finance industry, technology, the building of hospitals, the promotion of entrepreneurial development and to establish high-quality educational systems. Oil wealth is only a foundation that derives from the fact that everyone in the world will have to use the Islamic currency in order to purchase oil.
"If you are the entity (International Islamic Central Bank) issuing this currency, you demand that oil be purchased through your currency; and while the rest of the world is seeking to get your currency notes in order to buy oil, you are using these notes yourself to buy other assets. Any asset you choose. The currency would instantly have value because the other countries will use it to buy oil," he said. Gause's point illustrates how the Islamic nations who are mostly known for exploiting natural resources could use their currency as well as the their wealth from oil to become world leaders in every field known to man.
Economist Jude Wanniski of Polyconomics, Inc., believes that one industry where the Muslim world would immediately become a world leader would be the high-tech international finance industry. Describing the pivotal role that Muslim nations would obtain in this field, he said, "If (the Islamic economic bloc) went on a gold standard and it had the only currency in the world that was guaranteed in gold, and the Islamic nations kept their currency values fixed in terms of gold, while the rest of the world's currencies were becoming less valuable in terms of gold, the (Islamic Economic bloc) would get more business in banking. Imagine Belgium is going to send butter to Brazil and Brazil is going to send coffee to Belgium. The Brazilians and Belgians will be drawing their contracts up in the Islamic currency, so the banks in the Islamic community would get bigger and bigger and bigger and they would be able to get a percentage of the contract between the Belgians and the Brazilians as payment for serving as financial intermediaries.
"The reason that the Belgians and the Brazilians would be using the Islamic currency is because they would not have any risk, neither the Belgians nor the Brazilians would be risking an inflation or a deflation. There would be an exact transfer of butter for coffee. Neither side would get blind-sighted by a sudden change in the value of the currency. This is what the world has not had since 1971 (when America went off of the gold standard)."
Realizing that Muslim nations could create wealth outside of using their natural resources, like oil, is critical because the Islamic nations' reliance on oil for wealth has been used against them, even to the point of blaming them for the oil shocks of the 1970s. While it is widely believed that the oil-producing nations, Muslim and non-Muslim, caused the oil shock of 1974 by raising the price of oil by 400 percent over a three-year period, some believe that there was another cause for the dramatic rise in the price of oil, a cause that the media, economists and politicians have been slow to mention. Mr. Wanniski and Canadian economist Robert Mundell believe that the rise in oil prices was caused when the dollar's link to gold was ended in August of 1971 by Richard Nixon. They believe that when the dollar went off of gold there was no signal to guide monetary authorities and that these monetary authorities made errors that increased inflation and this inflation spread throughout the world. In other words, in 1971 the Federal Reserve had already created an excess supply of dollars, most of this excess supply of dollars was used to purchase gold, driving the price of gold upward, then some of those dollars went toward driving the price of oil upward.
This was the case because the oil-producing nations saw the dollar being able to purchase less gold and , therefore, questioned why they should accept less-valuable dollars for their oil. They saw inflation becoming a threat to their wealth and wanted more dollars in payment for their oil. This was a natural reaction. This was no conspiracy on the part of the oil-producing nations designed to hurt Israel and America, it was good business.
Mr. Wanniski is not alone in his belief that the oil-producing nations were made a scapegoat for the dual mistake that America made by first creating an excess supply of dollars and by secondly severing the tie between the dollar and gold. Colonel Fletcher Prouty, former Chief of Special Operations for the Joint Chiefs of Staff and creative adviser to movie director Oliver Stone for the movie "JFK", told The Final Call that he was present at a March 1973 meeting arranged by the White House at the offices of the National Defense Transportation Association for representatives of the largest petroleum-consuming organizations in the country--railroads, airlines, utilities and trucking firms. At this meeting a White House spokesman informed the group that a study had found that the world's petroleum supplies were running out and would be depleted by the year 2000.
They were told that the meeting had been called to alert the major consumers of petroleum that before the year was up, prices for petroleum would rise by 200 to 300 percent. Prouty believes that the group was being prepared to accept the price increase that was coming but that the real reason for the price increase was being covered up. Prouty didn't have to wait long to see the price increase or the story that would be used to explain it to the public: "Then as if right on schedule, an Arab-Israeli war broke out in late 1973. Before long it was announced that the Arabs had instituted an oil embargo and that available supplies of automobile gasoline would drop around the world, causing prices to go up."
The common theme in Wanniski's and Prouty's explanation of the oil shocks is that the Arab or oil-producing nations were blamed for a price increase that was inevitable and caused by U.S. economic and foreign policy. The lesson to be learned from this time period as it relates to an Islamic gold-standard is that, any signs of economic solidarity coming from an Islamic economic bloc could be perceived by the U.S. government as anti-American and anti-Israel and could easily be portrayed in the media as such. These charges could easily be dismissed by emphasizing that the gold-standard benefits all who link into it because it provides a light to all who are trying to navigate in financial darkness and ambiguity. Then, nations such as Israel and America could trade with each other or another nation and eliminate the instability that would be associated with using their own currencies. They could denominate the transaction in Islamic currency because that currency has a stable value as a result of being on a gold standard.
As the 21st century approaches, if there is to be any real hope of making the next century a century of peace, then there can be no disruptions in the economic realm. The first step toward that can be taken with the establishment of a stable unit of account that the world can follow for guidance. The establishment of this stable unit of account can be accomplished by the re-emergence of a gold standard. This would eliminate the dangerous periods of inflation/deflation that destroy trillions of dollars and the debtor/creditor relationship.
It would be nice if America would lead the way in this direction, but as has been the case of late, when it comes to leadership, America is missing in action. Well, why don't 1 billion Muslims who have a spiritual and moral prohibition against inflation/deflationary cycles known as Riba al-Fadl, step to the forefront? Why not begin dialogue and strategic planning that adds the necessary economic component that will truly enable the 21st century to become the Century of Peace?
(Cedric Muhammad is a contributing editor to The Final Call. Responses can be e-mailed to Cedric Muhammad).
[ National News | World News | Features | Columns | Perspectives ]
|
The
Final Call Online Edition
©1997 FCN Publishing
ALL RIGHTS RESERVED
External Links and/or Opinions expressed by guest
columnists are not necessarily the
views of Minister Louis Farrakhan, The Nation of Islam or The Final Call.