Kuala Lumpur: Domestic and international trade can be facilitated by commercial trade exchanges as they support trade by brokering the members' merchandise, keeping account of members' transactions and trade balances and acting as a clearing house.
Central banks, similarly, can increase trade with member countries by using Multilateral Payment Arrangements (MPA) which substantially reduces the need for foreign exchange reserves. It would be even better if the MPA is gold-based, since central banks can leverage on their gold reserve holdings.
Increasing the membership size and lengthening the settlement period can limit the need for cash (or gold) for settlements.
Malaysia has bilateral payment arrangements with around 20 countries and now it has an opportunity to introduce the gold-based MPA. It was first suggested by former Prime Minister, Dr. Mahathir Mohamad, in response to the 1997 East Asian economic crisis.
The governments should establish a global currency that is anchored to some “money” commodities like gold for a long-term solution as it would be an effective fixed-exchange-rate regime that would bring about monetary stability and hence encourage international trade.
Such type of international reserve currency will not be in control of any country. The Governor of China's Central Bank, Zhou Xiaochuan, suggested adopting an international reserve currency as global money and the International Monetary Fund (IMF) will manage it.
The G-20 Summit in 2009 agreed to support a Special Drawing Rights (SDR) allocation which will inject some $250 billion into the world economy. This SDR is the most likely candidate for a global currency which was created by the IMF to replace gold as an international reserve asset.
The SDR has to be made redeemable for some real commodities like gold to make it truly political-free and stable.
From an Islamic perspective, the gold dinar and silver dirham were the monetary units of the Islamic caliphate from the dawn of Islam until the collapse of the caliphate in 1924.
The governments are required to keep taxes as low as possible for boosting economic activities especially in the current recessionary environment. Low rates encourage business activities and do not encourage tax evasion whereas high tax rates discourage business activities while increasing the probability of tax evasion.
The governments should also impose negative interest rates for viable economic development as experts have proved that viable economic development needs negative interest rates.
There should be tax on annual savings which is the essence of Islamic principle of Zakat (Alms) rather than current system of rewarding it through interest.
There should be more regulations and transparency in monitoring of the banking sector, rating agencies and hedge funds as learned in the current economic crisis.
These measures will not only help battle prevailing economic crisis they will also serve the objectives of Islamic Shariah by working on the principles of compassion, justice, avoidance of greed and protection of rights back into the socio-economic dimensions.
Socialism collapsed in 1990s and Capitalism is also dwindling to fall down, now the Islamic Finance system should be given a chance to prove its excellent and permanent results.
The Vatican has already urged the banks to look at the rules of Islamic finance to restore confidence among their clients at a time of global economic crisis.