By Nelly Favis-Villafuerte
In my article last week (Part I), I mentioned that “the latest cryptocurrency soon to overwhelm the world is the New Digital Dinars originating in the Moslem countries. An Internet report reveals that on January 24, 2018, the global network for processing Digital Dinar transactions goes online – although, the initial coin offering of digital dinars was held last May on the first day of Ramadan. The difference between the new Digital Dinars and the other major crypto-money in the market today is the fact that Digital Dinars are 100% backed by real, in-the-bank gold bullion.”
Actually, this is not the first time that gold dinar was launched in Muslim countries. Gold dinars had been existing for over a thousand years ago. But the early gold dinars were not 100% digital. Nor were they encrypted by an uncrackable algorithm. Nor were they limitless in terms of exchange or portability. Some years ago, there were dictators in Muslim countries who created their own gold dinar. To name two (2): remember dictator Saddam Hussein who created his own gold dinar ahead of the Iraqi invasion of Kuwait. At that time the gold dinar of Saddam Hussein traded 3-to-1 over the dollar. But after the invasion, the Hussein dinars collapsed… trading 3000 to 1. Another dictator Muammar Gaddafi in Libya, also pushed his own version of gold-backed dinar in 2009. Gaddafi attempted to have Africa to adopt his gold-backed dinars. He was assassinated instead. Other Islamic countries tried also to introduce their own version of gold dinar (like Indonesia in 2000, Malaysia in 2006). ISIS tried to issue its own physical gold dinar in 2015. Still there were other versions of gold dinars that came and went in Islamic communities in UK, Pakistan, South Africa and even in the US growing Islamic community but did not last. Today, the performance of this new digital dinar is still being watched.
One may ask: Is the digital dinar being introduced by Muslim countries a threat to the supremacy of the US dollar? All the cryptocurrencies including digital dinars are a threat (insignificant it may seem at the start) to all kinds of physical money including the US dollar. Considering too, that eight (8) of the fourteen (14) countries in OPEC (Organization of the Petroleum Exporting Countries, the organization that dictates the oil prices for the world) are Muslims. There is always that looming threat that OPEC leaders may be tempted to replace the US dollar in pricing the oil (referred to as petro-dollar) with the more modern, gold-back, digital alternatives.
One may ask: how the so-called petro-dollar came about? It will be recalled that sometime in 1873, when oil prices were skyrocketing, US (under the late President Richard Nixon’s administration) negotiated with Saudi Arabia on the purchase of oil. As a result, Henry Kissinger, the US Secretary of State forged an agreement with Saudi Arabia requiring that in return for the military protection and weapons to be provided by US, Saudi Arabia would sell oil to US and thereafter all future sales in oil to US would be denominated in US dollar. The other OPEC countries (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, the United Arab Emirates and Venezuela) agreed then to the same arrangement. Meaning, that the oil will be priced in US dollar. In short, every oil export around the world (considering the US dominance as a global oil importer then) followed the practice of pricing oil in US dollar. However, today China is now the world’s largest importer of oil. This is how the term petro dollar came about.
The main competitive advantage of the new digital dinar is that it is backed by gold which none of the world’s most tracked currencies can claim or can boost. Not even bitcoin which is the leading cryptocurrency (which existed only in 2009) is backed by gold. Today, bitcoin registers over 350,000 digital free transactions per day.
Incidentally, the US dollar was backed up by gold before 1971. But since 1971, the entire US monetary system has been based only on trust.
It will be recalled that before 1914, the global monetary system was based on the gold standard. Including the US dollar which was then backed 100% by gold. By 1914, the global monetary system changed into a Gold Exchange Standard in which the US dollar was only partially backed by gold. In 1945, a new Monetary system known as Bretton Woods came about. Under this system, world leaders agreed to have the US dollar as the global reserve currency and linked it to gold at the rate of US$35 per ounce. Later in 1971, however, then President Nixon put an end to the direct convertibility of the US dollar to gold. As a result, the US dollar had no more backing in gold – and consequently the US dollar being a fiat currency depends solely on trust. The fiat status/system of the US dollar is already over forty (40) years old. So far no “crisis of trust” has yet happened. (To be continued)
Have a joyful day! (For comments/reactions please send to Ms. Villafuerte’s email: email@example.com).