New Monetary System Must Be Based On Gold, Says Mahathir

A new monetary system must be devised based on something of real value such as gold, former prime minister Tun Dr Mahathir Mohamad said Wednesday.

He said that despite everyone knowing that the abuses of the banking system which had caused the present economic crisis, no one was seriously thinking of changing the system.

"The US dollar has no backing whatsoever. Other currencies, including the Malaysian ringgit, are backed by gold or other so-called hard currencies held in reserve," he said at the World Congress of Accountants 2010 during his session on "Transitioning to a Sustainable Global Financial System: Lessons from Global Financial and Economic Crisis".

As to whether the Malaysian ringgit should be internationally traded in the market again, Dr Mahathir said: "During the Asian financial crisis, to prevent currency traders from selling our currency and devaluing our currency, we decided that our currency could not be transferred between buyers and sellers and so the currency trading stopped and the government decided to fix the exchange rate that stabilised the market."

"Malaysian currency has became very stable and the economy grew. Now the ringgit can be traded to a limited range and people are thinking of allowing for the currency to be traded in the international financial market. However, many countries are talking about fixing their currency exchange rates," he said.

"When money is printed by private banks and there is no backing for the money thus created, how can anyone accept these pieces of coloured paper as money?"

According to Dr Mahathir, the present financial and economic crisis is due to greedy people abusing the system.

"Accountants examining the accounts of the banks involved in the sub-prime lending must have noticed that the bank people were not adhering to prudent banking practices and they were lending far too much money to borrowers who they must know would be unable to pay," he said.

"But because the banking system regards the loans that they give as assets, the urge to lend far more than what was proper overcame prudence."

Dr Mahathir said to secure the bad loans, the bankers bundled and insured them with insurance companies and mortgage companies.

"They could still have avoided disaster but so greedy were they that the sub-prime loans became so big that when they failed as they must, neither the banks nor the insurance companies nor the mortgage companies could cover the bad loans any more and so the banks, the insurance companies and the mortgage companies collapsed," he said.

Dr Mahathir urged accountants to blow the whistle hard and long and alert any abuses in the system.

"Accountants can play a positive role. The accounting profession must be willing to tell the rich that they must no longer abuse the system, that in fact they must devise a new monetary system and that they must return to gold." he said.

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