FACTORS INFLUENCING THE ACCEPTANCE OF SAVINGS IN GOLD DINAR: THE CASE OF DEPOK, INDONESIA

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1 FACTORS INFLUENCING THE ACCEPTANCE OF SAVINGS IN GOLD DINAR: THE CASE OF DEPOK, INDONESIA Norizaton Azmin Mohd. Nordin 1 ; Nur Hasyyati; Abdul Halim Abdul Hamid Abstract 2 The savings and usage of gold dinar has returned in some Islamic countries such as Indonesia, Malaysia, some Middle East countries and even in United States of America. This situation was much expected especially when Islamic countries which are Middle Eastern, African and some Asian countries are forced to exchange their petroleum with devalued US Dollar (Global Research, May 2011). Although the implementation of gold dinar has not yet replaced the paper currency as the legal tender, it has been growing fast due to private companies and individuals who have minted and distributed it in local market. For example in Indonesia, several cities or states has independently distributed gold dinar to the public. One of the known cities is Depok which is located in western border of Jakarta, in West Java province. Therefore this research focused on factors that influenced the acceptance of savings in gold dinar in the City of Depok, Jakarta. Descriptive and multiple regression analysis are being used to analyse five main factors that influenced the savings in gold dinar. They are: 1) religion; 2) none interest bearing; 3) social order; 4) disinflation in gold dinar; and 5) government support. Among all, none interest bearing and social order are the factors which influenced the people in the city of Depok to save in gold dinar. The results also showed that most of the respondents who save in gold dinar are employed married male and stability in gold dinar value is the top reason for them to save in gold dinar. Field of Research: Gold dinar, gold and savings. 1 * Norizaton Azmin Mohd Nordin, Faculty of Business and Law, Multimedia University. azmin@mmu.edu.my 2 3rd INTERNATIONAL CONFERENCE ON BUSINESS AND ECONOMIC RESEARCH ( 3rd ICBER 2012 ) PROCEEDING MARCH GOLDEN FLOWER HOTEL, BANDUNG, INDONESIA ISBN: WEBSITE:

2 1. INTRODUCTION Initially, gold was being used for jewellery, personal adornment, decorations as well as to represent wealth and power (Bernstein, 2000). Ancient civilizations which existed in Egypt 5,000 years ago used gold generously to decorate tombs and temples (Kirkemo, Newman and Ashley, 2001). Later, it was developed into coinage and being used by many great powers such as the Roman Empire (Grossman and Metcalf, 2004), Byzantine Empire (Grierson, 1999 and Krumbacher, 2001), Persian and Arabian Empire (Lopez, 1943 and Wasserstein, 1993). According to Sanusi (2002), Islamic scholars in the past such as Ibn Khaldun, al-ghazzali, Ibn Tamiyyah, Qudama Ibn Jaafar, al-maqrizi have affirmed that Allah SWT had created gold and silver as a medium of exchange and a measure for all things. During the Prophet Muhammad (peace be upon him), the Muslims used the Roman gold coin (denarius) and the Persian silver coin (drachma) to carry out the Shari ah principles. During that time the term dinar refers to gold coin utilized by Muslims society until the fall of Ottoman caliphate (Meera, 2002). Implementing economic system based on gold dinar is not an easy task. Meera (2002) stated that, there are some challenges in implementing economic system based on gold dinar such as opposition by superpowers i.e. United States or minority parties who get the advantage of current fiat money system, arbitraging between fiat money and gold dinar as well as level of confidence and acceptance by the public. Despite the challenges, the savings and usage of gold dinar has returned in some Islamic countries such as Indonesia, Malaysia, some Middle East countries and even in United States of America. This situation was much expected especially when Islamic countries which are Middle Eastern, African and some Asian countries are forced to exchange their petroleum with devalued US Dollar (Global Research, May 2011). Although the implementation of gold dinar has not yet replaced the paper currency as the legal tender, it has been growing fast due to private companies and individuals who have minted and distributed it in local market. For example in Indonesia, several cities or states has independently distributed gold dinar to the public. One of the known cities is Depok which is located in western border of Jakarta, in West Java province. Therefore this research focused on factors that influenced the acceptance of savings in gold dinar in the city of Depok, Jakarta. Descriptive and multiple regression analysis are being used to analyse five main factors that influenced the savings in gold dinar. They are: 1) religion; 2) none interest bearing; 3) social order; 4) disinflation in gold dinar; and 5) government support. 2. SAVINGS IN GOLD DINAR Due to limited past research in gold dinar, some of the variables used are based on the savings in precious metals, which is the gold itself. From previous researches five factors have been identified to influence individuals to save in gold or gold dinar. They are: 1) religion; 2) none interest-bearing; 3) social order; 4) disinflation in gold; and 5) government support. 2.1 Religion Gold dinar was not limited only to Muslims; they were also being used by non-muslim. Based on the past history, before Islam emerged, the gold was known as a tool of exchange. Indeed, in the Prophet (peace be upon him) time, 1967

3 the dinar was obtained from the Roman (Byzantium) whereby the people and its king were mostly Christian (Pujiyono, 2004). However, in the modern days, Hosein (2007) said that most of those who use gold dinar are Muslim. It is in accordance to Al-Qur an and Hadith. Gold and dinar are mentioned in some verses in Al-Quran and Hadith (or Sunnah), for example: Surah At-Tauba, 9:34 And those who hoard gold and silver and spend them not in the way of Allah, announce unto them a painful torment. Surah Ali Imran, 3:14 Beatified for mankind in love of the joys (that come) from women and offspring; and stored-up heaps of gold and silver. Based on Hadith of Sahih, Muslim, the Prophet (peace be upon him) said: Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt. The meaning of this Hadith is that, money is placed in the sunnah has to be as the following: Precious metals, Money with intrinsic value, And money located within Allah s creation with value assigned to such money by Allah, who is the creator of wealth. It is assumed that the market of gold dinar in Indonesia would mostly be dominated by Muslim, due to the fact that in Indonesia, Muslim is 88.22% of total population (Kettani, 2010). Therefore this research would examine whether religion is a significant factor for people in Depok to save in gold dinar. H 1 : There is a significant effect of religion on the acceptance of savings in gold dinar in Depok, Indonesia. 2.2 None interest-bearing In the economy system based on gold dinar, there is no interest bearing because it is strictly prohibited according to Shariah Law, which is stated in Qur an. There are many Surah explaining about interest (riba or usury), one of the Surah is: Al-Baqarah 2: 275 Trade is like usury, but Allah hath permitted trade and forbidden usury. Hamid and Nordin (2002) stated that major portion of banks income is derived from interest income. The interest incomes are generated through loans that bank give out after deducting required reserve stated by the law (Rose, 2000). This is also known as money creation or money multiplier. However since gold dinar must be represented by actual money that contains certain weight of gold, it cannot be simply multiplied or created (Hamid and Nordin, 2002). The increased in gold dinar can only be supported by an increased in real gold production such as new gold exploration, mining and production (Dali et.al, 2004c). Unlike fiat money system which promotes money multiplier and interest charges, gold dinar system requires hundred percent reserves and liquidity, therefore interest income for gold dinar is very unlikely (Hamid and Nordin, 2002). 1968

4 Meera and Larbani (2003) as well as Meera (2004) further added that fiat money, fractional reserve requirement and interest rate are the root cause of economic instability and poverty. Gold dinar provides the opposite of those three, which are real money, hundred percent reserve requirement and negative interest rate. Negative interest rate stimulates circulation of money and avoid hoarding. Furthermore, by using real money such as gold dinar, global socio-economic problems may be reduced. This research looks at whether the feature of none interest bearing have an effect on individuals to save in gold dinar. H 2: There is a significant effect of none interest bearing on the acceptance of savings in gold dinar in Depok, Indonesia. 2.3 Social Order In the current international monetary system, arbitrage and speculation is possible due to different currencies and the cross exchange rate that has been existed between them. Yusuf et. al, (2002) stated that the role of gold dinar in international trade could reduce speculative activities but it would not eliminate the speculative activities wholly since the price of gold or currencies also fluctuate and therefore it is still exposed to such activities. Nonetheless, through the implementation of gold dinar as a single currency, any attempt for speculation and arbitrage can be eliminated (Dali et.al, 2004a). A research conducted by Dali et.al. (2003), showed that more than 40 percent of the multinational corporation agreed to use gold dinar since it could decrease the exchange rate risk. Paper money has pushed people to spend more than their earnings by creating a credit card. Therefore, the dependency towards credit card might decrease by the introduction of gold dinar (Dali et. al, 2004a). Gold dinar might also assist in the reduction of poverty through the payment of zakat, whereby the rich gives some of their wealth to the poor. Ultimately, the economic will turn out to be less individualistic and be more helpful to each other (Dali et. al, 2004a). With gold dinar, the real sector will be more prosper and thus, promote a just monetary system. It will reduce the disparity between the lower income and higher-income society, which in the end will improve the economic social order (Dali et. al, 2004). H 3: There is a significant effect of social order on the acceptance of savings in gold dinar in Depok, Indonesia. 2.4 Disinflation in Gold Inflation is a rise in goods and services prices over time. Some economists argued that high rates of inflation are caused by high growth rates in money supply (Ul Haq and Hussain, 2008). Disinflation in gold viewed gold as an inflation hedge or as a hedge against the fear of inflation (Jastram, 1977). Ghosh et.al, (2002) concluded that retail price index in the United States and the nominal price of gold, are involved in a long-run relationship between January 1976 and December The test results also showed that gold is consistent for being a long-run hedge against inflation (Ghosh, et. al, 2002). In 1701 to 1792 and 1822 to 1914 in England, the price of gold remained constant while other commodity prices had fluctuated. In conclusion, the purchasing power of gold is maintained over long periods of time due to its stability, wide supply and demand of gold (Jastram, 1977). 1969

5 Gold cannot be easily created because it is difficult to obtain from nature. Since it is originated from precious metals, it also has an intrinsic value. Inversely, the fiat money can be easily created by printing more of it, which will create inflation in the future. Today s printing technology of fiat money is so advanced that it may allow convenience to forgery (Meera, 2004) Unlike paper money which is archaic over time, gold is storable and can be saved for future use. The reason is, it is a metal which does not oxidize easily. Besides, the gold will become more valuable over the years because of its numismatic value. Inflationary problems may not occurred because the gold is not able to be destroyed (Meera, 2004). Blose (2005) further stated that the higher gold prices are correlated with the lower inflation. H 4: There is a significant effect of disinflation in gold on the acceptance of savings in gold dinar in Depok, Indonesia. 2.5 Government Support In local level, Indonesia s government has permitted the establishment of Islamic Mint Nusantara. This company began the minting of gold dinar and silver dirham since 2000 (Firman, 2011) which afterwards, they introduced Wakala or Dinarfirst Kiosk as an exchanged agent. It is the place where the customers are able to buy and sell, exchanged or keep their dinar and dirham (Gandhi, 2009). As a result, there are ninety five wakalas that have been operated since 1999 which spreaded out at several cities and states in Indonesia and centralized at Wakala Induk Nusantara. On the international level, Malaysian Prime Minister during 1981to 2003, which is Tun Dr. Mahathir Mohamad, has proposed to implement the Islamic gold dinar through a series of conference in 2002 and The notion is to conduct bilateral trade among Islamic countries and as an option to prevent turbulence at the currency market (Woertz, 2005). However the effort to use gold dinar among OIC countries were not materialised due to lack of support among Islamic nations (Dali, 2009). There is very few past research being done on government support towards implementing the savings in gold dinar, therefore this research shall look into whether government play a significant role in introducing gold dinar. H 5: There is a significant effect of government support on the acceptance of savings in gold dinar in Depok, Indonesia. 1970

6 3. THEORETICAL FRAMEWORK Research Framework of Factors that Influenced the Savings in Gold Dinar in Depok, Jakarta Independent Variables Dependent Variable Religion None interest bearing Social order Factor Influencing the Acceptance of Savings in Gold Dinar Disinflation in gold Government support 4. METHODOLOGY The questionnaires were designed with 3 sections. The first section looks at the demographic profile of the respondent and the second sections identify the gold dinar savings activities such as the knowledge, time period, the number, the weight and type of gold dinar that have been saved by the respondent. Finally the third section asked respondent on the dependent and independent variables. A total of 5 questions were asked for each variables by using Likert Scale, with 1 for Strongly Disagree and 5 for Strongly Agree. 1971

7 A total of 300 questionnaires were distributed to the respondent in the City of Depok, but only 259 were returned. Therefore, the data for this study were collected from 259 respondents that are savers and non-savers in gold dinar. Among the 259 respondents, there are 159 savers and the balances do not save in gold dinar. Datas were collected from none savers as well because this research is focusing on the acceptance of savings in gold dinar. All datas are analysed by using Statistical Package for Social Sciences (SPSS) version Demographic Analysis 5. DISCUSSION OF FINDING The results showed that majority of the savers are males (36.7%) as shown in Table Based on the frequency analysis, 95 of the respondent are male savers, followed by 64 female savers, 53 female non-savers and 47 male non-savers. Table 5.1.1: Gender Respondent s Frequenc y (%) Demographic Saver Saver (%) Non- Non-saver Total Total (%) saver (%) Gender Male Female Total % % % As shown in Table 5.1.2, majority of the savers are from the age of 26 to 30 and 31 to 35 years old with 13.5% and 12.7% respectively. Followed by savers aged 21 to 25 (9.3%) and 36 to 40 (9.6%) years old. Table 5.1.2: Age Respondent s Frequency Demographic Saver Saver (%) Non- Non-saver Total Total (%) saver (%) Age < > Missing Total % % % 1972

8 Based on Table 5.1.3, the majority of the respondents are Javanese (45.9%) for both saver and non-saver, followed by Sundanese (15.8%) and Betawian (15.4%). Whereas 6.9% of the respondents are Minangkabau and 3.1% each for Sumatran, Palembang and Acehnese. The remainder of the respondents are from Borneo, Tapanuli, Ambon, Batak, Sasak and Sulawesi. Javanese recorded a higher number of respondents since the research is done in Java island. Table 5.1.3: Race Respondent s Frequency Demographic Saver Saver (%) Nonsaver Non-saver (%) Total Total (%) Race Sundanese Javanese Betawi Minangkabau Borneo Sumatran Banjar Tapanuli Melayu Palembang Acehnese Ambon Batak Sasak Sulawesi Missing Total % % % As for marital status, majority of the respondents are married 68% (45.6% saver, 22.4% non-saver). And more than half (54.5%) of the respondent are employed. This showed that working married individuals are more concern on savings in gold dinar, compared to singles. Finally, the income levels of respondents are shown in Table The top of income level is RP 1 million RP 5million with 34.7% (23.9% savers and 10.8% non-savers). In contrast, the lowest percentage of monthly income is RP 10.1 million RP 15 million with 5.8% (4.3% savers and 1.5% non-savers). The level of RP 1million RP 5 million is equal or slightly higher than the average of monthly income in Indonesia. Important to note that majority of the savers are from the income of RP1 million to RP 10 million per month (45.6%). This means that medium income group are more concern in savings in gold dinar compared to higher income. Table 5.1.4: Monthly Income 1973

9 Monthly Income (RP million) Frequency (%) Saver Saver Non- Non- Total Total (%) saver saver (%) (%) Below Above Missing Total % % % 5.2 Descriptive Analysis This part presented further the views of savers and non-savers about savings of gold dinar Familiarity of the Existence of gold dinar in Indonesia, especially in the City of Depok The result in Table showed that 75.3% of respondents said they are familiar with the existence of gold dinar in Indonesia whereas 24.8% of respondents said No, which they are mostly nonsavers. This explains that those who have knowledge in gold dinar tend to save it. Table 5.2.1: Familiar with the Existence of Gold Dinar in Indonesia, especially City of Depok Category All Respondents Saver All Respondents (%) Saver (%) Valid Yes No Missing Total Total Value Time period of savings in gold dinar As shown in Figure 5.2.2, majority of the respondents have been saving in gold dinar for less than 1 year (30.9%), followed by 1 to 5 years (23.9%), and more than 5 years (6.2%). Table 5.2.2: Time Period of Savings in Gold Dinar 1974

10 Category All Respondents Saver All Respondents (%) Saver (%) Valid < 1 year 1-5 years > 5 years Total Number of Gold Dinar Coins Owned and Buying Place Majority of the savers have 1 to 5 coins (25.5%), followed by more than 21 coins (12.0%), 6 to 10 coins (11.2%), 11 to 15 coins (8.9%) and lastly coins (3.1%). None was answered mostly by non-savers (38%), which can be seen in figure Figure 5.2.2: Number of Gold Dinar Coins Owned All Respondent Saver (%) coins 6-10 coins coins coins > 21 coins None Majority of the respondents buy gold dinar at Dinar Wakala/Kiosks (31.7%), followed by Gerai Dinar and Individual agents (11.2% each), Dinarfirst (5%), and Logam Mulia offices/ branches (2.3%) as shown in Figure Figure 5.2.3: Place of Buying Gold Dinar 1975

11 5.2.4 Type of Gold Dinar Owned The result showed that 32.4% of the respondent owned Wakala Induk Nusantara gold dinar, followed by 22.8% owning Logam Mulia gold dinar and only 5.8% owned Islamic Mint Nusantara gold dinar. This is because Wakalah Induk Nusantara gold dinar is widely available in Depok. Figure 5.2.4: Type of Gold Dinar Owned All Responde n Saver (%) 10 0 Logam Mulia Wakala Induk Nusantara Islamic Mint Nusantara Non-savers 1976

12 5.2.5 Weight of Gold Dinar Owned Gold dinar with the weight of 4.25 grams is the most popular among others, in which 56.0% of respondents stated they saved in 4.25 grams gold dinar, followed by 2.13 grams (1.9%), 1.06 grams (1.5%) and 4.50 grams (0.8%). Only 0.4 % each saves in grams and 8.50 grams. Table 5.2.3: Weight of Gold Dinar Owned Category All Respondents Saver All Respondents (%) Saver (%) Valid gram 2.13 gram 4.25 gram 4.50 gram gram gram Reasons for Saving in Gold Dinar More than 40% of the savers stated the reason for savings in gold dinar is due to stability in value, followed by 14.7% (each) stated that gold is a good hedge against inflation and for religion purposes. The remainder of the savers stated the reason for saving in gold dinar is for wealth increment (1.5%), investment (1.2%), hajj (0.8%), for business and dowry (0.4% each). Table 5.2.4: Reasons for Saving in Gold Dinar Category All Respondents Saver All Respondents (%) Saver (%) Valid Religion Stability in Value Increase in Wealth

13 Hedge against inflation Business Dowry Hajj Investment Reliability analysis The data were tested using Cronbach Alpha to determine its reliability. The results are shown in Table 5.3 below. As the Cronbach Alpha for all the independent variables are above 0.7, all the variables in this research are reasonable reliable (Green, Salkind and Akey, 2000) Table 5.3: Reliability Values (Independent Variable) Variable No. of items Cronbach s Alpha Religion Factor None Interest Bearing Social Order Disinflation in Gold Government Support Multiple Regression Analysis Multiple regression analysis is applied to analyze the relationship between independent and dependent variable. The result is presented in Table 5.4 below. Table 5.4: Regression Result for Factors that Influence Savings in Gold Dinar Variables Std. Error Beta t Sig. 1978

14 (Constant) Religion None Interest Bearing Social Order Disinflation in Gold Government Support * * Dependent Variable: The Acceptance of Savings in Gold Dinar in Indonesia *Significant at the 0.01 level (1-tailed) The five independent variables that have been tested are religion, none interest bearing, social order, disinflation in gold, and government support. In conclusion, none interest bearing and social order have significant impact against the acceptance of savings in gold dinar in Depok, Indonesia. For none interest bearing, the result is consistent with the previous studies by Dali et.al (2004c), Meera et. al (2003), Meera (2004), as well as Hamid and Nordin (2002). While the social order, the result is consistent with previous research by Dali et. al (2004a), Ahamed et. al, (2002), Yusuf et. al, (2002) and Dali et. al (2003). Other factors such as religion, disinflation in gold and government support do not have a significant effect on savings in gold dinar. These variables presented a weak effect because of several reasons. For example, majority of the respondents realised the importance of savings in gold dinar is not only for religions purposes but more on economic reasons. As for disinflation in gold, the respondents might perceive that increasing gold price would certainly affect the price of gold dinar coin. In other words, over time it requires more Rupiah to buy a gold dinar coin. Perhaps further research is needed to analyse their perception on gold dinar as a hedge against inflation. Finally, government support also does not have a significant effect on savings in gold dinar. This new findings showed that at present, the Indonesian government has not introduce, support, or even create any organization of gold dinar coin. The re-emergence of gold dinar in Indonesia is mostly based on the idea and effort of individuals or society. 6 CONCLUSION As for the conclusion, as shown in Table 6.1, this research showed that among the five factors, only none interest bearing and social order have a significant effect on people of Depok to save in gold dinar. This showed that economic factor outperformed religion and government support in encouraging individuals in keeping the gold dinar. Table 6.1: Result Summary of Independent Variables (Multiple Regression Analysis) Hypotheses Decision on Null Hypotheses 1979

15 H 1: Religion has a significant effect on the acceptance of savings in gold dinar in Depok, Indonesia. H 2: None interest bearing has a significant effect on the acceptance of savings in gold dinar in Depok, Indonesia. H 3: Social order has a significant effect on the acceptance of savings in gold dinar in Depok, Indonesia. H 4: Disinflation in gold has a significant effect on the acceptance of savings in gold dinar in Depok, Indonesia. H 5: Government support has a significant effect on the acceptance of savings in gold dinar in Depok, Indonesia. Not Rejected Rejected Rejected Not Rejected Not Rejected Indonesian government might consider expanding the implementation of gold dinar in the nation either as a saving in short-term or as a medium of exchange in the long term. This research has proven that Indonesian government may maintain social order through the use of gold dinar. Since the gold dinar has also been implemented in a few states in Malaysia, it might be possible for Indonesian government to succeed especially when the number of Muslim population in Indonesia is 88.22% of total population (Kettani, 2010). The stability in gold value has been proven as the factor people save and use gold since the ancient times. To that extent, the stability of gold dinar value would indirectly reduce the poverty in the society and contribute towards social order. The number of individuals who use gold dinar as their savings, dowry, investment and for hajj has been growing fast. One of its preferred feature is because it is none-interest bearing. Therefore, financial institutions might consider providing new service for savings in gold dinar. Finally, this research has provided an insight into the gold dinar savings activities among the people of Depok, Indonesia. It is very important for the government as well as financial institutions to provide assistance for these people. The involvement in gold dinar savings is still very low but growing fast throughout the whole world. Therefore it is crucial for Indonesian government to take important actions to educate its people on gold dinar. Perhaps, in a few years to come, international trade using gold dinar would be possible among Muslim countries. REFFERENCES 1980

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