In this paper I shall outline the economic arguments as to why the dinar is indispensable for an Islamic monetary regime. My goal is only to emphasize the importance of the issue, not to make an exhaustive treatment. Thus, I shall not address important related issues like financial intermediation, forward transactions or interest. Finally I shall make a suggestion on how a transition may be possible and timely. Indonesia and Malaysia had thriving economies, but suffered from external deficits and a fragile financial sector.
Analysts trace the origins to the crisis in Asia to the Chinese and Japanese currency de-valuations.
The Mexican currency crisis was the final trigger in confidence problems. It is not the currency speculators who are responsible for the Malaysian crisis. A government which blames speculators for the consequences of its unsound monetray policy is like a rancher who, having slaughtered his cows on the open plains, blames the vultures for descending on their carcasses. The monetary problems in both Malaysia and Indonesia have led to political problems. Various solutions proposed are partial solutions.