Muslim nations need to start off with an 'Economic Ummah' so to speak, and definitely have some kind of a pact to stand together like European countries.
I wholeheartedly agree with this concept.
Mahathir Mohammad said that we should start by introducing the concept of "Islamic money" as opposed to fiat money. He said that in the time of the Prophet (SAW) a dinar was 4.25 grams of 24k gold while one dirham was 3 grams of .999 silver. In his view, this is what constitutes "honest money" and should be a requirement for all Islamic financial institutions to use honest money rather than fiat money. Of course, that complicates things only slightly because of the need to set up an exchange rate between the national "honest money"/Islamic money and the fiat money. So, in Pakistan for example we would have two sets of currencies....one fiat money which would be the rupee....and one set of metal backed currency which is Islamic.
One of the key affects this would have would be to control inflation within the economy since banks and financial institutions are not able to inflate it, or do fractional reserve banking when there is gold and silver involved...because the exchange risk would be too high and no government institution will be able to back it in case of default. Therefore...the Islamic money would actually be anti-inflationary money. The more we move towards this money, the more irrelevant it becomes what our exchange rate parity and inflation are, because they will become universal over the Islamic world that adopts this currency. All trade between these countries, if taken place in this currency, would enable Pakistan not to have to worry about devaluation since that would mean that gold/silver would have to be devalued globally and in that case it would make no difference to us.
Rupee devaluation is a major reason why foreign investors who are comfortable with Pakistan think twice about investing here. Instability is another issue altogether. Most definitely setting up an Islamic bloc is in the interests of all concerned.
with the dollar having fallen over 45% since Bush took office....the world is now re-thinking the status of the dollar as reserve currency and currency of trade. Everyone is re-considering the issue of how currencies should work, what they should be backed by, and what orientation this system should take. Now with Freddie Mac and Fannie Mae about to collapse with them being the lender of last resort on US$ 3 trillion in home loans...the US dollar is about to take a serious plunge and they are going to be begging for foreign capital from people who are already tired of giving it to them. Everyone wants out of the dollar now, and this coming plunge is just going to make that resolve much stronger. It takes years for the displacement of the international reserve currency, but that process already began a few years ago and will start to show its results in the very near future. That is when these alternatives will make more sense and I hope that people will be proposing these.
The first step should be currency. Then the economy. We can all hope and work for the rest once this is done.
