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Row over Malaysian state's coins

A Malaysian state's attempt to revive use of gold and silver coins common in early Islamic societies has fallen foul of the country's central bank, which said that local governments have no authority to issue their own currency.

The gold dinar and silver dirham coins provide an alternative to Malaysia's currency, the ringgit, in the north-eastern state Kelantan, which is governed by the Pan-Malaysian Islamic Party.

The gold dinar was the official currency of Muslim societies for centuries. The value of the coins used in Kelantan can fluctuate according to market prices, but officials said it remains a better alternative to currency affected by the US dollar and other foreign currencies.

Kelantan authorities also said the use of such coins is encouraged in teachings.

State officials have produced coins for use at about 1,000 outlets in Kelantan's capital, said Nik Mahani Mohamad, executive director of Kelantan Golden Trade, which mints the coins.

"It's a great, great moment for Muslims," Nik Mahani said. "We are providing an alternative means for the people to trade with."

The coins came into circulation on Thursday and can be purchased at various locations in Kelantan.

But the plan hit a snag when Malaysia's central bank said in a statement that the ringgit remained "the only currency that is the legal tender for payment of goods and services in Malaysia."

The bank said it "has the sole right under the law to issue currency in Malaysia." It was not immediately clear how the bank planned to block the use of the coins for transactions.

The state government also plans to give employees the option of receiving part of their salary in this currency, as well as introduce gold bars for large investments.

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