Persian Gulf states, including Kuwait, Qatar and the United Arab Emirates are talking about dropping their currencies’ pegs to the US dollar. Inflation in these states is spinning out of control, as the peg causes their currencies to follow the dollar lower.
According to Asia Times, they have been somewhat hesitant about this, not least because of concern over a viable alternative. They could peg to another currency, such as the euro, or even the yen, but pegging to either of these could at some point create the same difficulties that the dollar peg is creating now. It was not that long ago that the euro was trading at $0.87.
Another option is some sort of currency basket, as is used by Singapore.

If the Islamic states form a currency bloc based on gold, before too long the gold dinar would become the worldÕs most popular currency.

This is not a bad solution, as it provides some diversification among central bankers’ errors. However, in the sort of dollar-led worldwide inflation that is happening today, typically all currencies sink together.
Of course, these countries could try to go it alone, with an independent currency. But there is hardly any guarantee that the home-grown central bankers would be better than those at the US Federal Reserve or European Central Bank. Smaller countries have a history of regular currency crises.
The problem with all these alternatives is that, at their base, they rely on some personage like US Federal Reserve head Ben Bernanke to manage the currency properly. There is little evidence that this ever happens. Central bankers always screw up, eventually.
There is one--and only one--monetary system that has a history of not screwing up. That, of course, is gold. One of the most common currencies in the Persian Gulf region was the gold dinar. Ibn Khaldun, the 14th century Arab genius, wrote that the dinar had the weight in gold of 50.4 grains of barley, or 4.25 grams. Today, gold dinar coins are still being produced in Malaysia. They contain 4.25 grams of gold. The first standardized gold dinar coins date from 698 AD. They contain 4.25 grams of gold.
Why did people use these coins for over 1,000 years? Because, when using the coins, they never ran into problems, like those governments face today, that would cause them to adopt another system. These regions are no strangers to fiat paper currencies. The king of Persia issued a fiat paper currency in the year 1294 AD, the first paper currency outside of China.
Gold’s monetary value is stable. When you see the “price of gold“ soaring today, you are witnessing the decline in value of currencies worldwide. A currency pegged to gold, even if it is made of paper, is also stable in value. Paper currencies are pegged to gold in a fashion that is very much like an automatic currency board. In effect, there is a currency board linked to gold.
There are probably too many people in the world for everyone to use gold coins. That is one reason paper currencies, linked to gold, were invented. However, for a smaller region like the Persian Gulf states, it would be possible to use gold coins in daily transactions. The 4.25 gram gold dinar is worth a little over $100 today. Wouldn’t it be interesting to pay a Dubai hotel bill with gold coins?
The Persian Gulf states are uniquely suited for this change because their main export is oil. They don’t have to worry as much about the “competitive disadvantage“ that results when the US dollar or other major currencies are devalued.
In 2003, then-Malaysian Prime Minister Mahathir Mohamad proposed a pan-Islamic gold dinar currency. It’s time to revive that idea. If the Islamic states form a currency bloc based on gold, and stick with it, before too long the gold dinar would become the world’s most popular currency.

Oil rose to a fresh record of $126.2 a barrel on Friday, as a strong performance over the last week and a surge in heating oil futures convinced investment funds to push prices higher.
Funds were keen to shift their money into the oil market after seeing US crude rise about 13 percent since the start of the month, Reuters reported.
US crude for June delivery rose as far as $124.70, surpassing the previous record of $124.61 hit on Thursday.
By 1:25 a.m. EDT (0525 GMT), the June crude contract was $124.55 a barrel on the Globex electronic trading platform, up 86 cents, or 0.7 percent.
London Brent crude rose 85 cents to $123.69 per barrel.
“Funds are pouring into the crude market as prices have been performing extremely well,“ said Tatsuo Kageyama, analyst at Kanetsu Asset Management in Tokyo.
“Lingering geopolitical fears and high heating oil prices are helping the market, but the speed of the rise is too fast.“

Global rice prices have soared for a fifth successive day as the cyclone damage in Burma continues to put pressure on tight supplies.
The cost of rice rose by 3.5 percent to $22.35 per 100lb in early Thursday electronic trading on the Chicago Board of Trade, adding to similar rises in recent days.
Cyclone Nargis hit Burma on May 3, killing tens of thousands of people and hitting the main rice-producing areas, BBC wrote.
Rice prices were already at peak levels after bad harvests and higher demand.
The price of US long-grain rice--the global benchmark--has now increased by more than 61 percent since the start of the year.
This increase has been replicated around the world, with Thai and Indian rice prices going up by similar levels. The higher prices have been exacerbated by a number of key producing nations moving to set limits on rice exports to try to guarantee sufficient domestic supplies and calm internal prices.
World number one exporter Thailand has announced such a move, as have India, Bangladesh and Egypt.

German industrial output and exports fell in March, data showed Thursday, as a stronger euro, weaker global demand and high raw material prices left their mark on Europe’s largest economy.
Until recently, economic data and sentiment indicators suggested that Germany was weathering well the prevailing headwinds in the world economy but Thursday’s data added to growing evidence that this may not be the case, AFP reported.
Figures from the economy ministry for example showed that output from German factories dipped 0.5 percent from February, the first monthly fall since November, while February’s rise was adjusted downwards to mere 0.2 percent.
The main culprit was a 12.3 percent slump in construction activity as a result of a mild winter which meant that the usual spring bounce in building activity was not forthcoming, the ministry said.
On a two-monthly basis--comparing February and March to December and January--production rose a more respectable 0.6 percent, and for the whole of the first quarter output was up 2.3 percent.

Vladimir Putin has promised to rein in inflation and boost social spending in his new job as Russia’s prime minister.
According to BBC, in a speech to parliament before being voted into the position, Putin said he wanted to make the country a world economic leader by 2020.
Putin told the Duma he would strive for “single-digit inflation within a few years“, but on this economists said he would have his work cut out.
Russia’s annual inflation rate hit 14.3 percent last month.
With Russia continuing to enjoy an economic boom led by its oil and gas exports, Putin says it will overtake the UK in terms of gross domestic product (GDP) this year.
The UK currently has the world’s sixth highest GDP, with Russia one place behind.
Putin also pledged to cut taxes.
“Lightening the tax burden will be a significant stimulus for the country’s business climate,“ he said.
“I believe that we need to decide on the strategy and tactics of further tax cuts no later than by August.“