Previous researches had shown that the coinage system can make the whole economic system sustainable

rather than fiat money system. Of course the reason for that is the Gold Dinar and Silver Dirham are

capable of reducing the fluctuation in goods price, thus it can reduce the inflation and deflation. Despite

the fact that the both gold dinar and silver dirham are in a same kind, but they are in a different weight

age, hence each of them would bring different result in case of stabilizing or hedging the price

fluctuation. The question may arise here is which one of these metal can be a better tool to stabilize or

hedge the price fluctuation. As a response to this matter, an empirical study would be carried out to find

the answer. Therefore, this study is purposely compared the performance of gold dinar and silver dirham

in hedging the price fluctuation, and subsequently to identify which one of these commodity monies could

be a better hedging tool

Hazamuri, Norlina

Redzuan, Mohd Asyadi

Sharif, Dziauddin

Universiti Teknologi MARA Institutional Repository


BMQR Vol.1, No.1, 2010 
 
23 
IS DIRHAM BETTER PERFORMED THAN DINAR IN 
HEDGING FLUCTUATED PRICES? 
 
Dziauddin Sharif 
Norlina Hazamuri 
Mohd Asyadi Redzuan 
 
Universiti Teknologi MARA Melaka 
 
ABSTRACT 
 
Previous researches had shown that the coinage system can make the whole economic system sustainable 
rather than fiat money system. Of course the reason for that is the Gold Dinar and Silver Dirham are 
capable of reducing the fluctuation in goods price, thus it can reduce the inflation and deflation. Despite 
the fact that the both gold dinar and silver dirham are in a same kind, but they are in a different weight 
age, hence each of them would bring different result in case of stabilizing or hedging the price 
fluctuation. The question may arise here is which one of these metal can be a better tool to stabilize or 
hedge the price fluctuation. As a response to this matter, an empirical study would be carried out to find 
the answer. Therefore, this study is purposely compared the performance of gold dinar and silver dirham 
in hedging the price fluctuation, and subsequently to identify which one of these commodity monies could 
be a better hedging tool. 
Keywords: Performance, Dinar and Dirham, Fluctuated Prices, Hedging 
Paper type: Literature review 
 
Introduction 
At me time of the Prophet, Muslims used raw metal or Byzantine coins as money. Three sorts of metal 
were used for economic transactions: gold (Dinar), silver (Dirham), and copper (fals, pl.: fulus). The 
Muslim Government struck its own Dirhams as early as 18H although gold and silver coins from the 
Byzantine Empire were still accepted throughout Islamic society (Grohmann, 1955). However, gold 
coins were not struck before the Government of Mu‟awiya Ben Abi Sufyan (41-60H), and Byzantine 
coins were accepted until the monetary reform of „Abd aI-Malik Ibn Marwan in 75 or 76H.  
Initially, the quality of coin striking was poor, and weight varied. Therefore, coins were treated 
like raw metal: people continued to weigh rather man count them (Balog, 1961). Another reason that 
weighing remained the most important way of measuring the value of money was that wear and tear 
afflicted coins so that they would lose weight over time (Miskimin, 1989). Finally, even the official 
weight of the Dirham varied between 2.8 and 3.1 gram (Grohmann, 1955). In general, coins were still 
objects of trade with respect to their silver or gold content rather than simply an exchange medium, and 
were weighed rather than counted (Udovitch,, 1975). However, silver and copper coins were frequently 
exchanged in counting because they were less valuable (Balog, 1961).This indicates that the idea of 
money as a numeraire was already present in early times.  
 
Previous study 
There are number of researches about the advantages of Dinar and Dirham in hedging price fluctuation.  
Meera (2004) frequently emphasized on how these precious metals could play an important and 
significant role in stabilizing economic disasters such as inflation and recession. These commodity 
monies could be able to sustain from the economic disaster because it has its own intrinsic value and 
could stop money to become cheaper as what fiat money system has been producing in banking sector 
(Abdul Hamid, 2002). Dinar and dirham which is gold and silver originated could realistically replace 
BMQR Vol.1, No.1, 2010 
 
24 
existing currency and leads to be able to become a single global currency (Bonpasse, 2007). Besides, 
these commodities monies has their own characteristics which enabling them to eradicate or minimize the 
negative effects and impacts of modern monetary system (Freeman, 2003). 
The existing financial tools also could invite the disasters in economy. Thus, several studies have 
been carried out such as the comparison between the performances of gold with other derivatives 
instruments in hedging foreign exchange risk. Meera (2004) has argued that foreign exchange risk would 
be totally eliminated if a comprehensive gold dinar system is implemented. This means there is no need 
for forwards, futures or options on the currencies of the participating countries. Meera (2004) has also 
argued that the gold system in this case would be able to reduce currency speculation and arbitrage 
between the currencies.  
Based on the foregoing arguments, it can be concluded that the commodity money is capable of 
reducing the fluctuation in goods price. Today many investors become interested in gold and silver 
model. The concept of gold also was mooted out by the former Malaysian Prime Minister Tun Dr. 
Mahathir Mohammad, when he had called on such countries to formulate a gold payment (Mahathir, 
2000). The price of export and import the commodities product like food, construction product and others 
are to be quoted in weight of gold and silver, thus it can hedge the price fluctuation due to the price of 
gold and silver is more stable, so in this structure the gold itself is used for pricing and not national 
currencies backed by gold. On top of that, it is already proven the prices of commodities can be hedged 
and stabilized in 10 years time tough it is been used merely depend on intrinsic value, not only being 
backed.(Sharif, 2008).  
Though the both of gold dinar and silver dirham are in a same genus, but they are in a different 
weight age, hence each of them would bring different result in case of stabilizing price fluctuation. The 
question may arise here is which one of these metal can be a better tool to stabilize or hedge the price 
fluctuation. Since there is no clear evidence has been pointed out pertaining to this issue, the study on this 
matter would become necessary in current days  
 
Methodology  
Data of oil, consumer products and construction products‟ prices were gathered separately in 10 years to 
see the performance of gold Dinar and silver Dirham‟s capability in hedging the wild fluctuation of 
prices. Meanwhile, the measurement of the performances of commodity monies, dinar and dirham has 
been formulated through the conversion of gold and silver‟s price based on the prices determined in kitco 
index. The data of the products are selected based on the significance in consumers‟ daily life and then 
became the variables of this study. Besides, it is also has given a big impact to people who are 
continuously struggling against the increasing prices and its fluctuation in market. 
The main source of data collection came from secondary source. The data of products‟ prices are 
collected from mundi index and some of them gathered from the document of the related company. The 
price of gold dinar, silver dirham, oil, consumer‟s product, and construction product then accumulated to 
do comparisons between them. Another source came from recorded perusal or published information like 
magazine, annual report, other documents and many more. The national statistic department and world 
market price for each product also have been a part of the resource to make sure the prices is really true 
and accurate.  
Paired sample T-test procedure was used to test the difference of mean for a pair of variable. This 
analysis was conducted because researcher needs to measure if there is a significant difference between 
performance of Gold Dinar and Silver Dirham in hedge the price fluctuation in commodities product. The 
paired test usually results in a more powerful test of a false null hypothesis. The output gives the sample 
means and the mean difference, their standard deviations and the standard errors. The 95% confidence 
interval for the mean difference is also shown as well as the t-test of the null hypothesis that the "mean 
difference = 0" versus (vs) the alternative hypothesis that the mean difference is "not = 0". The p-
value equals 0.144.Both the paired and independent sample t-tests make assumptions about the data, 
although both tests are fairly robust against departures from these assumptions. In the paired samples t-
test it is assumed that the differences, calculated for each pair, have an approximately normal distribution. 
BMQR Vol.1, No.1, 2010 
 
25 
Techniques are available to test this assumption. An alternative procedure that makes no assumptions 
about the distribution of the data is the Wilcoxon Test, but this test is less powerful than the paired sample 
t-test. 
 
Theoretical Framework  
 
Variables: Gold Dinar, Silver Dirham 
Variables: Oil Price, Price of Consumer Product and Price of construction product.              
 
Figure 1: Schematic Diagram (Relationship Diagram) 
 
                                                           
 
Oil Price 
Price of Consumers Product 
Price of construction Product 
 
Data Analysis and Treatment 
The statistical tool used in this study is T-test. A statistical test establish significant mean different in a 
variable between two groups in the variables. The T-test employs the statistic to test a given statistical 
hypothesis about the mean of population (or about the means of two populations) it determine if there is a 
significant relationship between the dependent and each independent variables. The standard error of 
coefficient this is need in order to compare the calculate T with critical „T‟ from. 
1
)(ˆ 2
2




n
n
DD
n
D
X
t
ni
i
DX
D
i

         
                                                                                                                                    
                                                                                
 DX  =  Means difference score 
iD  =  (Dinar minus Dirham) 
DXˆ  = variance 
t = t – test analysis 
 = Samples size 
 
Hypothesis Statement 
1. Hypothesis  1 
 
H0: There is no significant different between in Gold Dinar and Silver Dirham in     
      hedging consumer product price 
H1: There have significant different between in Gold Dinar and Silver Dirham in  
      hedging consumer product price 
 
2. Hypothesis 2  
 
H0: There is no significant different between Gold Dinar and Silver Dirham in  
      hedging oil price 
Silver Dirham Gold Dinar 
Oil Price 
Price of Consumers Product 
Price of Construction Product 
n
BMQR Vol.1, No.1, 2010 
 
26 
H1: There have significant different between Gold Dinar and Silver Dirham in 
      hedging oil price 
 
3. Hypothesis 3     
H0: There is no significant different between Gold Dinar and Silver Dirham in   
      hedging construction price 
H1: There have significant different between Gold Dinar and Silver Dirham in  
            hedging construction price 
 
Findings 
Consumer’s product 
 
Figure 2 
 
 
 
 
Table 1 
 
 Mean T Sig. (2 tailed) 
Dirham 1434.2987  
15.560 
 
.000 
Dinar 17.0613 
 
The significant value is lower than 0.05 (.000 < 0.05), it means there is significant difference between 
gold dinar and silver dirham in hedging the consumers‟ product price fluctuation. Thus the study reject 
the H0 = (X1=X2). Base on figure 2, it shows dirham is more perform in hedging   consumer product‟s 
price than dinar. The p < 0.05 in the table refer to mean that shows silver dirham more perform in hedging 
the consumer products‟ price fluctuation.  However, both of commodity monies are better medium in 
hedging consumer products‟ price.  
 
 
 
 
 
 
BMQR Vol.1, No.1, 2010 
 
27 
Crude oil 
 
Figure 3 
 
 
 
Table  2 
 
 Mean t Sig. (2 tailed) 
Dirham 57.4898  
18.851 
 
.000 
Dinar .6900 
 
The significant value is lower than 0.05 (.000 < 0.05) in this study result is significant difference between 
Gold Dinar and Silver Dirham in hedging oil price. This study reject the null hypothesis H0 = 
(X1=X2).Base on figure 3, it also shows the same result with table 1, which is, Dirham is perform in 
hedging crude oil price fluctuation. 
Base on result in table 2, the mean of Dirham is higher than Dinar, which means Dirham is more 
perform in hedging crude oil fluctuation. However, it does not mean Dinar is not functionally good in 
hedging crude oil price‟s fluctuation because the transaction of gold has freely traded in the market that 
leads to exploitation and manipulation. Thus, this brings the effect of being easily increasing as well as 
decreasing.  
 
Construction product  
The significant value is lower than 0.05 (.000 < 0.05). The result creates significant difference between 
Gold Dinar and Silver Dirham in hedging oil price. This study reject the null hypothesis H0 = (X1=X2) 
Table 3 shows Dirham is more perform in hedging construction product price‟s 
fluctuation. It also shows the mean of dirham is higher than dinar. Thus, it shows the Dirham is 
performed due to the absence of being openly exposed to speculation. The similar result has 
found in figure 4.  
 
 
 
 
BMQR Vol.1, No.1, 2010 
 
28 
 
 
 
                                                          Figure 4 
 
 
 
 
 
Table 3 
 
 Mean t Sig. (2 tailed) 
Dirham 38591.0612  
17.156 
 
.000 
Dinar 472.7848 
 
 
Conclusion 
This research is not intend to prove which one is better than another in term of features but more to the 
games of current market situation which open to speculation and manipulation. The comparison between 
both dinar and dirham is not proper to be conducted in term of features and intrinsic values because in 
Quran had mentioned to use both of metals and thus, considered good tools for medium of exchange and 
transaction. Dirham performs better than Dinar in this paper because silver (Dirham) is not bare to 
speculation for certain reason but gold is highly speculated. More than that, gold is highly demanded due 
to its intrinsic value and the other usage such as jewelry, thus, make people to control it by speculation 
and manipulation. If the price of gold increases, it is not merely decreases by its own value but by 
exploitation.  
Obviously, Dinar and Dirham are advocated for having exchange rate stability in practice not in 
theory. Exchange rate diverged much among countries if left unattended to fluctuate. The fluctuating 
exchange rate seriously hampers international trade and finance. Implementation of Dinar and Dirham 
such money multiplier activities will not be happened if not impossible to occur. This is because each 
Dinar and Dirham must be represented with actual money that contains a certain weight of gold and 
silver. Thus, it is hoped the implementation of the system related dinar and dirham will eventually be 
responded by the world. 
BMQR Vol.1, No.1, 2010 
 
29 
 
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Is Dirham better performed than Dinar in hedging fluctuated prices? / Dziauddin Sharif , Norlina Hazamuri and Mohd Asyadi Redzuan

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Is Dirham better performed than Dinar in hedging fluctuated prices? / Dziauddin Sharif , Norlina Hazamuri and Mohd Asyadi Redzuan

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