TWICE Dr Mahathir Mohamad called for nations to move away from the dollar-based international monetary system into a currency pegged to the gold. Twice his calls were in vain. In 2002 he proposed the gold dinar be used as an alternative currency for international trade, particularly among the Islamic countries.

Recently in May 2019 at the 25th International Conference for the Future of Asia in Tokyo, Dr Mahathir made a similar call, for an East Asian common currency pegged to gold.

The need for a gold-pegged common currency is now more pressing than ever.

Essentially what Dr Mahathir suggested at the Future of Asia conference was the gold exchange standard, or the Bretton Woods system, before 1971 when Nixon severed the link between dollar and gold.

The gold exchange standard is more flexible and straddles the extreme of the merits and demerits between the classical gold standard and the floating exchange rate system or the fiat money system we have now.

In a classical gold standard, countries will not be at liberty to print or electronically create money to infinity because the currency created has to be backed by physical gold.

The floating exchange rate system with its flexibility is most conducive to economic growth that the classical gold standard is handicapped.

But it is opened to abuse and manipulation to the whims of those in power, to inflate the currency, to print money to cover national debts. In other word it means diluting and “stealing” of wealth from the masses.

The fiat currency system, coupled with the dollar as a world reserve currency, allows for manipulation via short selling in currency trading, economic sabotage, and used as economic and political weapon to subdue nations.

Having the dollar as a world reserve currency also means the US technically owns the oil and minerals extracted in any country when these natural resources are traded in US dollar.

Similar to a country over printing its currency to spend at whims and thereby “stealing” wealth, the US by printing and electronically created money for its series of quantitative easing (QE) was also diminishing the value of the dollar held in reserve by central banks of other nations.

From 2007 to 2015 through QE 1, 2 and 3, the US Federal Reserve balance sheet ballooned from US$870 billion (RM3.6 trillion) to US$4.5 trillion. During this period US$3.6 trillion was created in the US alone. US12.3 trillion was created by all central banks (according to a CNBC report in 2016), and went into creating a worldwide artificial boom.

Dr Mahathir’s words at the Future of Asia conference, “Anything that you have in oversupply we will lose value”, are stark reminder of the unpleasant reality that inflation through indiscriminate money supply by any government is a treacherous breach of faith.

Or as the famed Scottish philosopher David Hume put it when he described trust, “Inflation is a devaluation of the future through broken promises”.

Currently there are numerous signs showing the trust in the fiat monetary system has diminished. The World Gold Council (WGC) in its Q1 2019 Global Trend Report stated that worldwide gold demand increased by 7% to 1,053 tonnes compared to Q1 2018.

Central banks were on a gold buying spree with a 68% increase to 145.5 tonnes purchased in Q1 2019 compared to the same period in 2018.

Loss of trust in the fiat monetary system can also be seen in central banks repatriation of their gold storage from abroad, in New York, London and Paris. Following Germany’s open announcement in 2013 of its intent to repatriate gold, Netherland, Hungary, Romania followed suit. The US Federal Reserve denied Venezuela’s intention.

The fiat monetary system that came into existence since August 1971 could only sustain so long as the governments and people maintain trust in the system. We are now at the beginning of Q2 of 2019.

The US Federal Reserve has announced that it will not raise interest rate. It is now poised for reverse gear slowly reducing interest rate to zero again.

There is very strong likelihood of a new round of QE hoping to spur growth. The previous round of QE brought hyperinflation in equity market and assets, except commodities, but failed to raise growth.

The next rounds of QE with lowering interest rate will likely witness oversupply of the fiat currency and erode all remaining trust in the monetary system.

When it happens, money will migrate to the Midas safe haven. Gold price will soar. There will be a global economic blitzkrieg.

Dr Mahathir’s suggestion for an East Asian common currency pegged to gold may sound far-fetched to most. It’s either because foresight is a rare commodity, or the mechanism to peg different currencies to gold and the mechanism for international settlement are still unclear. In any case, it is in gold we trust. – June 6, 2019.

* Captain Dr Wong Ang Peng is a researcher with an interest in economics, politics, and health issues. He has a burning desire to do anything within his means to promote national harmony. Captain Wong is also a member of the National Patriots Association.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.