But the most difficult and doubtful objective is today the idea that Islamic banks and other Islamic institutions can implement their own potential under existing condition of domination of conventional finance system. Nowadays only one country in the world (Sudan) has completely Islamic financial sector. In most of the countries Islamic banks have to work in the framework of traditional conventional financial system, which can not allow to display sufficiently its potential.
Most of the countries who support the idea of Islamic path of economic development realize that creation of the separate new financial institutions can not change the existing world order. They need thoroughgoing reforms which could transform the world financial system based on domination of US dollar. The appearance of Euro as a medium of exchange and price of goods in international trade system has not brought any changes to developing countries. During the asian financial crisis of 1997-1998 former malaysian prime-minister supported the project of Gold (Islamic) Dinar as an alternative to world financial system established by Jamaica Agreement in 1976.
The problem of a gold Dinar is associated with the problem of returning to gold standard, which allow free conversion of cash money to gold. A Gold standard problem has not appeared casually in Muslim world. The main injustice by the opinion of the gold Dinar idea supporters is that most of the Muslim countries sell their own natural resources ( first of all oil and gas) and receive in return dollar paper money or digits on bank accounts. In the both cases we speak about the money from air, created and printed by Federal Reserve System of the USA. (because hydrocarbon resources are offered for sale predominately for dollars)
Federal Reserve System has an unlimited monopoly right to print uncovered paper money as for internal and for foreign-trade operations. In fact FRS exchange colored papers for solid goods and dollars value can be 1000 times less than its nominal value. At the same time oil exporting countries can't print dollar paper money which has an equal circulation along with national currencies in quite number of countries such as Guatemala, Salvador, Ecuador.
And we have another situation with Gold. When gold is standard none of the countries can possess a monopoly to produce gold bars and coins. Under the usage of gold standard Muslim countries can receive for their natural resources not the paper money printed by US government but fungible quantity of commodities, which can be gold ( it's not significant bars or coins).
Thus, the most important causes that motivate Muslim people to arouse interest in gold standard in Islamic world are:
1. Unchangeable to gold paper money (fiat money) and credit money: Under fiat money it is accepted to understand not only paper money which is unchangeable to gold but also any other types of money, which has no intrinsic value, including digits in banking accounts. Earlier in western countries bank notes were accepted as medium of exchange which allowed to buy gold long period of time. But paper money has no such feature and they also unavoidably lose its value in comparison with gold.
2. Seignorage, or revenue from emission of money, that received by the issuer of this money which calculated as margin between the nominal of monetary unit and production cost. Seignorage allow to the issuer to receive not just a profit, but also superprofit. If production cost of one issued 100 dollar paper note is 15 cents, while seignorage amount is 99 dollar 85 cents. In other words, more currency reserve has this or that government in foreign countries, more revenue it can receive from emission of paper money notes. So the role of US Dollar as a world reserve currency allow to US Government in addition to issue his currency without any risk of inflation.
3. Loan interest (riba) that widely used by conventional banking system. After seignorage and receivables of Central Bank which issue paper money, commercial banks receive their own profit share. Printed money begin to circulate as interest-bearing credit inside of a state where it was issued and outside at the same time. So far as other countries can’t print dollars and euros they have to compete with each other for the right to receive a credit based on this currencies. Thus, US Dollar and Euro turn into a commodity which has high merchantability. And as a payment for usage of these commodities they receive interest money. The only way to pay back the credit is to sell goods and services to countries which possess reserves in currency mentioned above, i.e. tangible goods and as usual nonrenewable natural resources, which production require the usage of labour and capital, are sold for paper money, which intrinsic value can be much less than its nominal value. Thus, Islam prohibits interest and allows trade. That’s why the majority of the Muslim scholars are against the usury. Apart from arguments in Al-Quran and Al-Sunnah, there are economic reasons for prohibition of usury such as: growth of capital expansion, growth of manpower resources, and advance growth of money supply, stimulation of consumption, including nonrenewable resources, concentration of wealth in the hands of minority and unjust distribution.
Advantages of Gold as Money
There are several factors that the civilizations are using gold and silver as their money, mainly as medium of exchange, it is because several factors that will be explains below.
High density and value-Gold is a mineral that is hard to obtain and desired by all races all over the world. This make gold is high in value. Because of its high density, small quantities of gold have a high value.
Stable and to last in a long term-From the chemistry view, gold is a metal that seldom react with another element. It is inactive and because of that it is mine as gold itself from the soil (not as oxide iron). Gold is also not corroded. It is also indestructible by heat and extreme pressure.
Homogenous and divisible to smaller part-This characteristic is important to able the valuation of gold from small to large according to its weight. If the gold is cut to two, it has the same contains. One part is not better than the other part. This characteristic makes the division is able to delicate parts. Gold from this part of the world is same as gold that mined from the other part of the world.
Keep able-Gold is an ideal value keeper. It can be kept for future use even though it is a time consuming. It will not be obsolete like fiat money.
Portable -Gold is portable so it can be a currency at all places. Even it is deem to be practical in terms of bullion or coins. Some misconception that gold is heavy and not portable is wrong since the gold and silver has been use for centuries as medium of exchange. It can be in form of coins or bullion.
Cannot easily been created and indestructible -Fiat money derive a lot of socio-economic problems because of it’s easy to create and easy to destroy. Inflation will arise if it’s created and problem like economic slump, unemployment, will arise if it’s destroyed. But gold can’t be created and can’t be destroyed. It makes gold is suitable as currency. The intrinsic value is very desired by everyone.
Therefore it is obviously that the gold is the most stable currency the world has ever seen. Being rare, beautiful and unique, gold is treasured as a store of value for thousands of years, and it is considered as an important and secure asset. Paper currencies may come and go, but gold endures. Despite fluctuating in price, gold is still preferred to currency because it of its real value or what is known as intrinsic value. Last but not least, gold have had value in all civilizations, have survived all financial crises, and can be expected to do the same in the future.
It is come to the conclusion that the author think that money should be restricted to the role of a medium of exchange rather than a store of value. Some modern scholars suggest preventing banks from creating credit at all since it impedes controlling the amount of money. As for paper money, it should be assumes the prominent role in economic transactions, a new legal concept has to be developed, which incorporates this new form of money. Even in the nineteenth century paper money could still be regarded as a credit for gold reserves with the central bank. However, in the twentieth century this approach is less convincing since it does not reflect reality any more. The full coverage of currency in gold was given up in Britain in 1931 and in the US in 1971. We should understand that the foundations for money have changed considerably whereby currently, paper money is issued without a real counter value and the social background for trade has changed.
New aspects of using money, especially continuous inflation, call for new directions in Islamic legal thought. Islamic legal thinkers come to different conclusions in their attempt to embed paper money into Islamic legal theories.
Moreover, to discriminate among the legally acceptable alternatives for interpreting the role of paper money in an Islamic economy, legal scholars have combined historical developments with practical economic aspects. Since this problem will remain a constant topic among Islamic legal scholars for some time. It is advisable that Islamic legal thinkers and scholars could hand in hand bring on their ideas and solutions towards a healthy market economy.
Daniyar Mamyrov, CIFP (Chartered Islamic Finance Program), Kuala Lumpur, Malaysia
References:
1. Al-Mawardi, Al-Ahkam al-Sultaniyah.
2. The Mejelle, (Complete code on Islamic civil law based on the Hanafi School of the Ottoman Empire) Kuala Lumpur 2003.
Articles:
1. Sanusi, Mahmood Mohammed. “Gold Dinar, paper currency and monetary stability: An Islamic view” Islamic transaction and finance (Fiqh Muamalat) By associate prof Ahmad Ibrahim Kulliyah of Laws. Harun M. Hashim Law Centre. 2001 (9) vol 9 number 2
2. Zainal Azam bin Abdul Rahman. “Currency fluctuation and its effect on debts and obligations in Islamic law”. IKIM Law journal, July-Dec 2001:Vol.5, No2, pp. 21-38
Most of the countries who support the idea of Islamic path of economic development realize that creation of the separate new financial institutions can not change the existing world order. They need thoroughgoing reforms which could transform the world financial system based on domination of US dollar. The appearance of Euro as a medium of exchange and price of goods in international trade system has not brought any changes to developing countries. During the asian financial crisis of 1997-1998 former malaysian prime-minister supported the project of Gold (Islamic) Dinar as an alternative to world financial system established by Jamaica Agreement in 1976.
The problem of a gold Dinar is associated with the problem of returning to gold standard, which allow free conversion of cash money to gold. A Gold standard problem has not appeared casually in Muslim world. The main injustice by the opinion of the gold Dinar idea supporters is that most of the Muslim countries sell their own natural resources ( first of all oil and gas) and receive in return dollar paper money or digits on bank accounts. In the both cases we speak about the money from air, created and printed by Federal Reserve System of the USA. (because hydrocarbon resources are offered for sale predominately for dollars)
Federal Reserve System has an unlimited monopoly right to print uncovered paper money as for internal and for foreign-trade operations. In fact FRS exchange colored papers for solid goods and dollars value can be 1000 times less than its nominal value. At the same time oil exporting countries can't print dollar paper money which has an equal circulation along with national currencies in quite number of countries such as Guatemala, Salvador, Ecuador.
And we have another situation with Gold. When gold is standard none of the countries can possess a monopoly to produce gold bars and coins. Under the usage of gold standard Muslim countries can receive for their natural resources not the paper money printed by US government but fungible quantity of commodities, which can be gold ( it's not significant bars or coins).
Thus, the most important causes that motivate Muslim people to arouse interest in gold standard in Islamic world are:
1. Unchangeable to gold paper money (fiat money) and credit money: Under fiat money it is accepted to understand not only paper money which is unchangeable to gold but also any other types of money, which has no intrinsic value, including digits in banking accounts. Earlier in western countries bank notes were accepted as medium of exchange which allowed to buy gold long period of time. But paper money has no such feature and they also unavoidably lose its value in comparison with gold.
2. Seignorage, or revenue from emission of money, that received by the issuer of this money which calculated as margin between the nominal of monetary unit and production cost. Seignorage allow to the issuer to receive not just a profit, but also superprofit. If production cost of one issued 100 dollar paper note is 15 cents, while seignorage amount is 99 dollar 85 cents. In other words, more currency reserve has this or that government in foreign countries, more revenue it can receive from emission of paper money notes. So the role of US Dollar as a world reserve currency allow to US Government in addition to issue his currency without any risk of inflation.
3. Loan interest (riba) that widely used by conventional banking system. After seignorage and receivables of Central Bank which issue paper money, commercial banks receive their own profit share. Printed money begin to circulate as interest-bearing credit inside of a state where it was issued and outside at the same time. So far as other countries can’t print dollars and euros they have to compete with each other for the right to receive a credit based on this currencies. Thus, US Dollar and Euro turn into a commodity which has high merchantability. And as a payment for usage of these commodities they receive interest money. The only way to pay back the credit is to sell goods and services to countries which possess reserves in currency mentioned above, i.e. tangible goods and as usual nonrenewable natural resources, which production require the usage of labour and capital, are sold for paper money, which intrinsic value can be much less than its nominal value. Thus, Islam prohibits interest and allows trade. That’s why the majority of the Muslim scholars are against the usury. Apart from arguments in Al-Quran and Al-Sunnah, there are economic reasons for prohibition of usury such as: growth of capital expansion, growth of manpower resources, and advance growth of money supply, stimulation of consumption, including nonrenewable resources, concentration of wealth in the hands of minority and unjust distribution.
Advantages of Gold as Money
There are several factors that the civilizations are using gold and silver as their money, mainly as medium of exchange, it is because several factors that will be explains below.
High density and value-Gold is a mineral that is hard to obtain and desired by all races all over the world. This make gold is high in value. Because of its high density, small quantities of gold have a high value.
Stable and to last in a long term-From the chemistry view, gold is a metal that seldom react with another element. It is inactive and because of that it is mine as gold itself from the soil (not as oxide iron). Gold is also not corroded. It is also indestructible by heat and extreme pressure.
Homogenous and divisible to smaller part-This characteristic is important to able the valuation of gold from small to large according to its weight. If the gold is cut to two, it has the same contains. One part is not better than the other part. This characteristic makes the division is able to delicate parts. Gold from this part of the world is same as gold that mined from the other part of the world.
Keep able-Gold is an ideal value keeper. It can be kept for future use even though it is a time consuming. It will not be obsolete like fiat money.
Portable -Gold is portable so it can be a currency at all places. Even it is deem to be practical in terms of bullion or coins. Some misconception that gold is heavy and not portable is wrong since the gold and silver has been use for centuries as medium of exchange. It can be in form of coins or bullion.
Cannot easily been created and indestructible -Fiat money derive a lot of socio-economic problems because of it’s easy to create and easy to destroy. Inflation will arise if it’s created and problem like economic slump, unemployment, will arise if it’s destroyed. But gold can’t be created and can’t be destroyed. It makes gold is suitable as currency. The intrinsic value is very desired by everyone.
Therefore it is obviously that the gold is the most stable currency the world has ever seen. Being rare, beautiful and unique, gold is treasured as a store of value for thousands of years, and it is considered as an important and secure asset. Paper currencies may come and go, but gold endures. Despite fluctuating in price, gold is still preferred to currency because it of its real value or what is known as intrinsic value. Last but not least, gold have had value in all civilizations, have survived all financial crises, and can be expected to do the same in the future.
It is come to the conclusion that the author think that money should be restricted to the role of a medium of exchange rather than a store of value. Some modern scholars suggest preventing banks from creating credit at all since it impedes controlling the amount of money. As for paper money, it should be assumes the prominent role in economic transactions, a new legal concept has to be developed, which incorporates this new form of money. Even in the nineteenth century paper money could still be regarded as a credit for gold reserves with the central bank. However, in the twentieth century this approach is less convincing since it does not reflect reality any more. The full coverage of currency in gold was given up in Britain in 1931 and in the US in 1971. We should understand that the foundations for money have changed considerably whereby currently, paper money is issued without a real counter value and the social background for trade has changed.
New aspects of using money, especially continuous inflation, call for new directions in Islamic legal thought. Islamic legal thinkers come to different conclusions in their attempt to embed paper money into Islamic legal theories.
Moreover, to discriminate among the legally acceptable alternatives for interpreting the role of paper money in an Islamic economy, legal scholars have combined historical developments with practical economic aspects. Since this problem will remain a constant topic among Islamic legal scholars for some time. It is advisable that Islamic legal thinkers and scholars could hand in hand bring on their ideas and solutions towards a healthy market economy.
Daniyar Mamyrov, CIFP (Chartered Islamic Finance Program), Kuala Lumpur, Malaysia
References:
1. Al-Mawardi, Al-Ahkam al-Sultaniyah.
2. The Mejelle, (Complete code on Islamic civil law based on the Hanafi School of the Ottoman Empire) Kuala Lumpur 2003.
Articles:
1. Sanusi, Mahmood Mohammed. “Gold Dinar, paper currency and monetary stability: An Islamic view” Islamic transaction and finance (Fiqh Muamalat) By associate prof Ahmad Ibrahim Kulliyah of Laws. Harun M. Hashim Law Centre. 2001 (9) vol 9 number 2
2. Zainal Azam bin Abdul Rahman. “Currency fluctuation and its effect on debts and obligations in Islamic law”. IKIM Law journal, July-Dec 2001:Vol.5, No2, pp. 21-38
