Both my parents lived in occupied towns in Europe during WWII. My father tells a story about how a few gold coins that had been hoarded by his mother managed to buy a wheel of cheese that somehow escaped the detection of the hungry occupying force.
The cheese fed their family for what were to be the last few months of a very long war. And the story of the gold coins and my grandmother’s timely trade became a family legend.
It turns out that paper money, at that time, meant nothing. People exchanged valuable family heirlooms like paintings and gold coins for foodstuff. This became the normal course of business.
I was reminded of this story when a PROFIT CONFIDENTIAL reader wrote to me and asked what I thought about the rise in popularity of the gold Dinar.
The Dinar is an ancient currency most often associated with the religion of Islam. The Dinar is a 4.25-gram 22-carat coin that has been a medium of exchange for many, many years.
The recent rise in popularity of the Dinar is a reflection that currencies have been known to collapse. Last year the premier of Malaysia proposed that the Dinar could eliminate paper money and likewise the threat of monetary devaluation. The last big Asian financial crisis blamed on speculators abroad wiped out paper savings and ultimately the wealth of millions of people.
Gold coins cannot be inflated or devalued and it is not a promise to pay, it is payment. A gold coin’s purchasing power may vary over time, but, unlike paper money, stocks, bonds and bank deposits, it cannot devalue to zero.
America, in particular, has become the symbol to many economists of the inherent shortcomings of paper wealth. The issuing nation can print as much as it likes, thereby devaluating the existing float. And subsequently your savings and dollar denominated assets.
America has been printing lots of bills in recent times and we have seen the results. The U.S. dollar has become worth less and many proponents of a gold standard say that this could have been avoided.
A number of Islamic countries have agreed of late to use the Dinar to replace the U.S. dollar for commercial transactions between their nations. Doing so will eliminate any cost or risk associated with conversions and foreign speculation.
The U.S. Mint also issues and sells Bullion coins. The congressionally authorized American Eagle is available in platinum, gold, and silver, ranging in weights from a tenth of an ounce to an ounce.
You can’t really spend them at Wal-Mart or buy a movie ticket with them, but who knows? That may one day come.
Of interest also is China’s back-pedaling on gold. As of 2004 China’s traditionally gold loving people can now buy and trade gold for the first time since 1949. Under the communists, trading and possessing gold was considered treasonous. The new government now plans to issue a gold coin!
To date, the gold coin trend has been generally ignored in Western nations. But if 1.5 billion Muslims and 1 billion Chinese get in on the game, demand for the yellow metal and declining demand for the greenback may play a surprisingly large economic role in the next decade.