In 2001, Dr Mahathir mooted the idea of a gold payment system — the gold dinar — to settle bilateral and multilateral trades among countries and thereby eliminates foreign exchange risk. In this mode, gold is to be used as a medium of exchange and as a unit of account instead of the national currencies.
Prices of exports and imports are to be quoted in units of gold weights.
The proposal was to source for an alternative system in the wake of the uncertain economic situation because the conventional system is vulnerable to currency manipulation and speculation.
In his book "The Malaysian Currency Crisis, How and Why it happen" Dr. Mahathir explain that Malaysia is a country with strong economic growth, grew 8% plus annually, politically stable and economically resilient. Its currency was strong and its international debts are within accepted limit. Therefore Malaysia was certainly not a candidate for severe recession.
But yet in July 1997, its currency began to devalue rapidly and its stock market plunged to extremely low levels. The value of Ringgit Malaysia keeps falling and could not be arrested. Malaysians were bewildered as they found themselves suddenly impoverished.
The main reason for the falling value of Ringgit Malaysia is speculative attack by currency trader. Dr Mahathir blames on the speculators, which contributes heavily to the country's depreciating currency value thus affecting the overall national economic condition. The currency trader depreciates the currencies, not because they fear the currency they hold would depreciate and they would lose their money, but they see profit in shorting the currencies.
Related Readings: 什么是做空机制？如何才能彻底控制一国的经济命脉？
Dr. Mahathir understands the reason a currency can be attacked is because the currency is based on fiat money system. It is money that a government declares to be a legal tender although it is not backed by any asset.
He mentioned that currency have value because government put a value on it. For example, RM1 didn't have a value of RM1 in term of paper value. It got the value because government prints the value on it. If the government prints RM5 or RM10 on the paper, the value of the paper won’t increase to RM5 or RM10. It is the government recognition and guarantee that makes the paper money got their respective value.
Related Readings: 什么是钱？
The Malaysian currency crisis in 1997-98 delivered a 5 important message.
1. Paper currencies have no real value - they are numbers printed on paper;
2. The global financial system is unstable and unjust;
3. Developing nations have little or no defense against currency speculation,
4. To defend ourselves, we must create our own trading currency of real value,
5. Gold is a safe and stable store of wealth and a globally accepted trade currency.
From: http://www.publicdinar.com/content/view/51/10/lang,english/
