Some Ideas Relating to Islamic Trading

Introduction

The wealth of our Muslim nation is our industrious people.

The Ummah is at the centre of the world, “the middle kingdom”, and it owns the world’s most valuable mineral resources, on which the present and future political strategies of the world political powers continue to pivot.

Yet, for over a hundred years an insidious hand has been placed upon this nation in an attempt to cripple its existence. The tools to cripple Dar al-Islam were first economic and then military. These tools are still in use today.

An attempt to “Islamise” capitalism was introduced through a reformist group starting in Egypt, based on a puritanical and modernist reading of the Islamic Law. Our task is to return to the Islamic Model, based on the first community in Madina al-Munawwarah as an alternative to capitalism.

That original model is Muamalat. The full implementation of Muamalat means the establishment of an Islamic trading Bloc, based on our model of Trade and our currency: The Islamic Dinar and Dirham.

An Islamic trading Bloc, is therefore not just Muslims trading with each other using the present capitalist way of trade. An Islamic trading Bloc will consist of everybody, Muslims or non-Muslims, trading in the way in which Islamic Law defines Trade —Islamic trading.

The establishment of Islamic trading is a huge task that will eventually replace capitalism as a practice and Economics as its ideology. This establishment will need a careful planning in which the key infrastructure of Islamic trading will be introduced gradually. The minimum infrastructure that will allow all aspects of Islamic trading to be developed is,

the Core Mechanism of the Islamic Trading Bloc.

The Return of the Islamic Dinar needs Islamic Trading

The Return of the Shariah currency, the Dinar and Dirham, poses a new understanding of wealth and prosperity that differs from conventional Economics. This new understanding is a new paradigm which we call Muamalat a significant part of which is Islamic trading. Islamic trading represents the wider frame in which the Islamic Dinar can operate as intended by Islamic Law. Only through Islamic trading can we realise the full potential of the return of the Shariah currency. The full implementation of Islamic trading proposes a completely replacement capitalism.

The return to Islamic trading is essentially a defence and enhance of trade. Why do we need to defend trade? Who/what is attacking trade? Trade has been abolished under the present legal and monopolistic order. To avoid misunderstanding we must clarify that what the World Trade Organisation (WTO) calls Trade, is not Trade in an Islamic sense, but is from an Islamic perspective what we might call monopoly distribution.

For trade to exist we need the need the return of some fundamental institutions now lost. The most important of those is the open/public market —Islamic market or suq— and second in importance, the caravans. The evidence of the return of trade will be the return of the caravans. We will elaborate further on this respect.

The “Islamisation” of Capitalism

Over the last fifty years a group of Muslims under the banner of “reform” has been engaged in what they call the “islamisation of knowledge”, the heart of which has been the “islamisation” of Economics.

Knowledge of Allah is unveiling from illusions of other-than-Allah. Hence knowledge is either Islamic or it is not knowledge at all. Knowledge cannot therefore be Islamised. Under the banner, the “islamisation of knowledge”, some scholars, taking knowledge for Western human sciences, undertook the ludicrous task of “Islamise” all human sciences: sociology, psychology, politics, anthropology and most important economics.

Islamic Economics produced Islamic banks, Islamic Stock Exchange, Islamic insurance, Islamic mortgages, and why not, Islamic credit cards.

Their methodology was simple. First, a rejection of the madhhab system, seen as medieval scholarship. Second, the transformation of the Shariah from its existential jurisprudence base into a normative set of abstract moral principles and values, that could be accessed at random. For example, the principles of equality and justice, seen as Islamic values, if assigned to any institution or financial procedure can serve to Islamise them.

The method resembles the famous statement of Father Ballerini, a leading Catholic on the eve of the christianisation of banks in the mid XIX century, who declared “the crime of usury depends on the intention of the lender”. Thus a 5% loan with good intention was declared faultless. Our modernist/ reformist scholars have used the same “subjective moralising” methodology. The proof is in black and white in the existing Islamic Economics literature.

The problem with this moralising methodology is not just the mistaken tactics. The problem is that the islamisation of capitalism moved the focus away from our Islamic model. Thus, while this reformist ethos remains alive, the idea of the Islamic Dinar and Islamic trading will remain concealed.

Islamisation has reached a point of evident absurdity, a nihilistic conclusion, that is to say, “their” Islamic values have been diluted into a hollow pragmatism. The ironic result of islamisation is a full assimilation to capitalism, a kind of “reverse secularism”. How can Islamising result is the same institutions, tools and procedures as capitalism but with different words? This farce must end, because not only is a non-sensical exercise but it prevents the real Islamic model from ever returning.

We do not want to islamise capitalism, we want to create an alternative to it.

The End of Economics

Economics is not neutral, it is an ideology based on presumptions quite opposite to Allah’s injuction “Allah has permitted trade and has forbidden usury”.  Economics reveals a different one, “Economics has forbidden trade and has permitted usury”.

The aim and methodology of Economics are not acceptable. We do not need to make them acceptable either, because we have a superior way of thinking emanating from the Sunna of the Messenger (May Allah bless him and grant him peace). We need to overcome this pseudo-science and create our own understanding outside their parameters. This is not Islamising Economics, but “ending” Economics.

The Danger of Mishandling the Sharia currency

We do not fear that the Sharia Currency will fail, but we fear people mishandling the Islamic Dinar and then blaming the Islamic currency for their own inadequacies.

What would constitute mishandling? Mishandling is what the Islamic Development Bank (IDB) did with the “Islamic Dinar”. IDB Islamised the special drawing rights (SDR is the currency created by the IMF to prevent gold from becoming a global alternative to the US dollar) and called it Islamic Dinar, now their unit of accounting. The formula: one Islamic Dinar = one SDR finished 14 hundred years of Islamic Currency history.

Mishandling means that the Sharia currency will turn into a marginal reserve of the banking system. Mishandling means that the Dinar is used to give a human face, perhaps an Islamic face to capitalism. Mishandling the Sharia currency  is failing to understand that this is an opportunity to create an alternative to capitalism (being a haram system), and instead reduce the affair to a marginal and unsuccessful gold standard experiment. This will not work. We want to emphasise this point about “gold standard” because it is often presented as the solution to the present problems. We will explain later why this is not a solution.

The development of the Sharia currency relates to and is consistent with trade institutions, but not financial institutions. If the Sharia currency would be placed in the hands of financial institutions it would become, quite predictively, a marginal reserve and would therefore not fulfil its key role of wealth creation and establishment of the Sunna. The Shariah currency can only succeed with the full implementation of Muamalat.

Strategic Development, Not Size, Is The Issue

It is important to understand that the Shariah currency must be accompanied by the creation of an Islamic trading infrastructure in which it can thrive. This is to say that we need simultaneously to establish the architecture of Islamic trading. Coordination and planning is fundamental. More important a proper understanding of what the Sharia currency demands, and what it can do and cannot do for the economy.

The Sharia currency cannot succeed in isolation but it requires the development of all the trade institutions  with which they co-existed and thrived in the past.

Why the Return to the Gold Standard is not Feasible nor Desirable

The Return to the Gold Standard is often mistaken as the Return of the Shariah currency. The mistake has a natural logical appeal: First there were gold coins, then paper that represented in part gold (the gold standard), and now there is only pure paper not backed by any specie of any kind. It is therefore logical but incorrect to imagine that since we came from the gold standard to the present situation we should return to the gold standard on our way to go back to gold.

Regarding the validity of the gold, its greatest strength is the fact that it is and it has been the best international money in history. The difficulty comes when gold is seen as interfering with the needs of management of the present debt economy by State institutions. Gold standard is seen by State instituons as being unfeasible or not practical because it does not allow the expansion of credit which is critical to the survival of the debt economy: unable to solve the problem of “there is no enough money” (which is mathematically an endemic problem of the debt economy), and the impossibility gold poses to “bail-out solutions”.

The problem is -and we will agree with them in this point- that you cannot slim a fat person by simply tightening a belt around his belly. The “solution” would kill him. Monetarists have blamed the “shortage of gold” as being the cause of all the economic crisis in the past. Their argument is that it does not allow for monetary expansion at the time of crisis. Since we are always in an state of crisis, or preventing a crisis, they see gold as a restriction in their primary concern “dealing with the crisis”.

Financial Markets need an occasional fix. It has always happened that way in the past. Earning money in the financial markets is wonderful: I sell you shares for 180, you sell them back to me for 210, I sell them back to you for 240, you sell them back to me for 270, etc. Both of us make money, but we have not added one iota of wealth or services to our community. Nevertheless, the GNP will reflect a growth due to the increase in value of the stock. This is the speculative money economy that drives the econometrics upwards. This speculative economy is more than 100 times bigger than the “formal” real economy. The problem is that when the stock reaches a point when there is no buyer, then the crisis comes. Why should there be a crisis? Why should the prices not simply fall, as with any other commercial item? Because the entire banking system is entangled in a chain of loans and collaterals reaches certain levels of the productive economy. In short, governments cannot afford the disarray, and they have to intervene in the only way they know, by pumping more money into the economy, bailing out the crisis with more paper.

How many times we have seen this scenario? The banking system has come out stronger and stronger after every crisis. Why? Because our politicians, in general, have been trained to think that the solution, always the same, consists of giving more money to the ailing market, relaxing the mode, one way or another, in which banks issue their credit.

In fact, we can say that we have been brought to our present type of economy driven by crisis, rather than by political consensus. The present monetary system, or lack of one –as stated by the Nobel Prize economist Robert Mundell-, came out of the bankruptcy of the US at the time of President Nixon in the early seventies, when he broke the last remaining elements of the old Gold Standard. Earlier, wars and revolutions paved the way to the first national paper currencies. Then it was crisis that widened the gap between physical specie and paper. Further crisis simply meant the gap grew wider, until finally, the leading capitalist nations resorted to this new arrangement of floating currencies, to the delight of speculators, who gave rise to an industry of 3 trillion dollars daily, taking full advantage of the chaos.

We would agree with monetarists that “to prevent the crisis” or “to manage the crisis” gold does not offer solutions. If that were the whole issue there would be nothing more to say, and the argument for gold would be finished –which is what monetarists want. But there is more to say about gold. First, the nature of the crisis is not addressed when we merely try to solve its symptoms. And second, we understand that there are certain sectors of the economy, different from the dominant speculative money economy, that could benefit from the use of the Shariah currency. Those sectors are essentially what are now known as the “real economy”. While gold does not help the speculative money economy, gold can help to activate the real economy which is often seen as a marginal sector, even though they are the lifeblood of the economy and their contribution to employment is overwhelmingly more important than the financial sector. Our argument is that gold does not relate to financial institutions and problems, but it relates to and will enhance the real economy and trading.

The debate between monetarists and gold standard economists is well known. The last time the debate erupted was in the late sixties and early seventies, after the French President De Gaulle announced his desire to see an European currency order based on gold to counteract the “excessive” power of the dollar. The arguments of every side are quite routine. The gold standard supporters say: justice, universality, no inflation, limit the power of banks, etc; the monetarists say: pragmatism in dealing with an economy in permanent crisis, gold is a restriction, it is expensive, it is not necessary for the primary tasks with which governments are more immediately confronted. This debate has been heard, and quite consistently for the last fifty years the monetarist have won it. At the end of the day, no government is going to sacrifice their immediate imperative necessities, and the prospect of loss of industry and jobs, in favour of an intangible –as they see it- ‘future best world’.

Our point is that the unbalancing nature of banking in the economy (usury itself) is amplified with a real non-flexible currency, unless banking is proportionally contracted. We are saying the trying to preserve the speculative economy is not feasible without enhancing the real economy and that is only possible with a parallel contraction of banking, that is creation of credit. I am perfectly aware that I am overstepping conventional thinking, perhaps this picture will allow to understand the new paradigm:

This economy is based 99% on credit, our muamalat is based 1% on credit. The key to understand our paradigm is “we do not need credit”. Here comes the blasphemy to economists: “Credit is actually harmful”. Development must be associated not to credit  and capital accumulation in private hands but to the establishment of common infrastructure in public institutions by means of legitimate forms of contractual agreement: ijarah, Shirkat and Qirad.

What we need, is to be able to create wealth without resorting to banking, without needing the banks. This is the turning point. The argument is that the question of money cannot be seen in isolation, because it is not, in fact, the core of the problem. The core problem is usury to which paper money is intensely attached. To take benefits from a just currency we have to be able to create an economy without usury, and this is the real challenge.

In the beginning of introducing the Sharia currency, we should allow for the co-existence of the two systems: banks will operate normally with their paper money while the Sharia currency is gradually introduced through trading institutions. Yet, it must be understood that the ultimate purpose of introducing the Sharia currency must be the elimination of usury, through a new re-understanding of the role of pure/open/Islamic trading.

The key to the successful introduction of the Sharia currency is the creation of new wealth that will be newly generated through the enhancing and expansion of trade.

The  Case for the Sharia Currency

1. The introduction SHARIA CURRENCY must be associated with the development of Islamic trading. The SHARIA CURRENCY will be associated with trade institutions which can thrive with it and not left in the hands of banking or financial institutions which will marginalise it.
2. Islamic trading will generate a new economy, a new wealth from the expansion of trade itself both in quantity and quality. Therefore the introduction of the SHARIA CURRENCY will not be competing with the existing wealth of the economy, but we will be creating a new one.
3. The SHARIA CURRENCY will be offered to the people as a choice not as a legal compulsion from the State Law. The SHARIA CURRENCY-based payment systems, such as e-dinar, should develop in accordance to a general policy of promoting Islamic Trading (thus avoiding usury), such as it is being done by the World Islamic Trading Initiative, and gaining gradually its place into the market as a practical service to people’s needs rather than being imposed to them through the Law.

The Real Economy

The real economy is the economy without usury. The real economy is the economy of the people who produce and trade honestly, creating wealth to their society in as much as they serve society. The real economy represents wealth generated by real people trading and producing real merchandise and services, sold in real market-places using real money.

The real economy has, in relation to the accounting methods of today, a formal and an informal reality. The informal real economy is the part of the economy where transactions are based on street trading, smallholder farmer production, and the labour of women to sustain households. The dynamism of informal economies sustains significant percentages of national populations, especially in developing countries. Nevertheless, their contribution is ‘invisible’ insofar as it is not counted in GNP or GDP growth. The formal real economy in which goods and services are produced and traded (and registered as part of the GNP), constitutes the visible part of the real economy. Usually ‘the real economy’ is defined as the ‘visible’ part of the real economy, which is the one that ‘counts’.

The Speculative Economy

The other part of the GNP is the powerful “money” or speculative economy, which arises from trading money in rapidly expanding pooled funds (e.g. pension and mutual funds). The volume of flows in the speculative money economy is about a hundred times greater than the volume of flows in the visible “real” economy.

The difference between the real and the speculative economy has also been defined in terms of productiveness as “productive” and “non-productive” economy respectively. This definition is a reflection of the fact that the speculative economy, which makes money out of money, such as the money created by speculative bubbles, is not a true productive force, and therefore it does not add real wealth.

The growing size and power differentials between these economies fuels social injustice and environmental destruction. According to the United Nations Development Program:

• The gap in per capita income (GNP) between the countries with the richest fifth of the world’s people and those with the poorest fifth widened from 30 to 1 in 1960, to 60 to 1 in 1990, to 74 to 1 in 1995;
• the fifth of the world’s people living in the highest income countries had 86 percent of world GDP, whereas the bottom fifth received only 1 percent; and
• half of the world’s population lives on less than $2 a day.

Through the use of computers, managers of the money economy rove the world and prey on national economies. In the series of crises in Asia, Russia and Brazil, we saw tidal waves of capital outflows devastate enterprises and livelihoods throughout entire nations.

With the rise of the speculative money economy, or “casino capitalism”, governments are weakened and marginalised. Through deregulation, governments transfer power to the so-called “market”. Some governments become more accountable to external investors and creditors than to their own citizens. Financier George Soros arrogantly observed how, these days, Presidents and Prime Ministers now court financiers and industrialists, not the other way around. Unelected financiers and industrialists are orchestrating the globalisation process.

The Effects of the Growth of the Speculative Economy

The most clear effect of the extraordinary growth of this speculation is the effect on poverty. This is the World Bank’s Report on Development Effectiveness.

The World Bank’s Annual Review of Development Effectiveness 1999 (p.17) finds increases in world poverty, inequality and instability. Some specific findings follow:

• In 40 percent of the countries, per capita income  either failed to grow or shrank;
• In 25 percent, the share of the population in  absolute poverty increased;
• In 23 percent, life expectancy declined;
• In 54 percent, the people experienced stagnating per capita income, rising poverty, declining life  expectancy, or a combination of these events;
• In 85 percent, per capita income grew 1% a year or less in the 1990s; and
• In 59 percent, gross savings as a percentage of GDP were low (less than 10 percent) or declining.

In 1990, the World Bank adopted the “overarching objective” of poverty reduction. In 1999, the IMF declared that poverty reduction would, henceforth, be the objective of its programs as well. However, hard evidence illustrates that their policies confuse the success of the lending programmes with the reality on the ground.

Far from advancing growth and development of the world economy, so-called “globalisation” has in reality showed itself to be a form of unbridled predator capitalism, which has opened wide the divergence between financial titles and real economy on the one hand, and rich and poor, on the other, in an intolerable manner, both on the national and the international plane.

What is Islamic trading?

Islamic trading is trade conducted under Islamic Law. The most important prerequisite for the existence of trade is the existence of the Islamic Market. A key characteristic of Islamic trading is its openness to everyone. It restores a natural right to the individual, which is, the right to trade: everyone has access to trade for free in an fitting venue, such as the traditional Open/Islamic Markets. This right has rapidly disappeared with the malls, supermarkets and hypermarkets, and has become the privilege of few. For example, the five largest supermarkets in Britain control 2/3 of all retailing.

Trade cannot exist in a regime in which supermarkets control retailing. Our right to trade can only be granted when public markets are in place. Trading requires markets and without them trading becomes monopolistic distribution.

Islamic trading is opened to all: Muslims and non-Muslims.

Usury is the illness and trade is health. To restore health is not enough with suppressing the symptoms, we need to promote health (good eating, exercise), a healthy body. To promote trade is the effective way of eliminating our dependence in usury. Promoting Islamic trading will be a positive way to present Islam to millions of victims of capitalism. Islamic trading will be a way of calling millions of non-Muslims to to see a new face of Islam: muamalat.

Another Aspect of Islamic trading: The Guilds

Islamic trading is a complete recipe to stimulate and encourage independent entrepreneurship. An Islamic society is not a society of employees. In pre-capitalist societies, Muslims have lived and worked organised in guilds. Belonging to a guild was the norm in Muslim societies. Businesses relations thrived inside the guild (without the need of banks) enhanced by the existence of a shared productive infrastructure within the organisation. The individual requirements to establish new enterprises within the guild were all favourable.

The relationship employer/employee was replaced by master/apprentice. There was not ”working class” in the days of the guilds. Guilds were historically eliminated by legal abolition and by the removing of their rights in favour of a new set of State given privileges and monopolies; and also the accumulation of capital (credit money) in private hands produced by banking. Today free competition and free access to the market do not exist for all. Thus it is not seen as a problem. Islamic trading guarantee equal rights for all. Islamic trading will decisively contribute the re-establishment of the guilds, challenging the system of the modern corporation based on “one owner and 14,000 employees”. It will encourage new models of open production processes (guilds), where production is open to thousands of free small owners associated. This is also part of the wider framework of the Islamic trading Initiative.

Concerning this matter, it is important to point out that specially since the beginning of the 1990’s, quite a few corporations have understood partially the benefits of dividing their production processes into smaller units. Instead of one pyramidal structure with one source of decision, they saw the benefit of many autonomous units working in collaboration while competing among each other. Thus, Toyota now claims that there is not one Toyota but two thousand Toyotas. Asea Brown Boveri, the Swedish-Swiss engineering giant, has subdivided itself into 1,300 independent companies and 5,000 autonomous profit centres. Their prosperous success is forcing others to adapt to the same principle. The policies of decentralisation, though they seem a step in the right direction, are limited because they have all been designed by corporate staff. Corporate staff could not suggest the ultimate step which would be to eliminate the corporation all together, or in other words to give total independence to the autonomous workshops. That could only happen if the small workshop could have an identical access to the customer as Toyota itself. To make that step we need open distribution networks and free market-places for all. These is all part of Islamic trading.

Islamic trading can transform money, transform production and distribution, create a new formulation of contractual law and, perhaps the most important, open trading to all in society. Islamic trading consists of new procedures, mechanisms and institutions based on justice. But Islamic trading is not a moral proposition, it is existential reality. It does not judge your inner convictions but only your outward behaviour and the effects of your behaviour.

The Foundations of Islamic trading consists of five main elements:

•     The Open Market-place                     A market place opened to all.

•     The Open Production process        A production accessible to all.

•     The Open Distribution network     A distribution accessible to all.

•     The Free Medium of Exchange     A medium of exchange freely chosen by all.

•     The Islamic Business Contracts    The contracts that guarantee Islamic trading.

What is The Islamic Market?

Soon after his arrival in Madina al-Munawwarah, the Prophet of Islam, salla’llahu ‘alaihi wa sallam, created two institutions, a mosque and a market. He made clear by his statements and explicit injunctions that the marketplace was to be a space freely accessible to everybody, with no divisions (such as shops) and where no taxes, levies or rents could be charged.

The Market is like a Mosque: …

The Messenger of Allah, salla’llahu ‘alaihi wa sallam, said: “Markets should follow the same sunnah as the mosques: whoever gets his place first has a right to it until he gets up and goes back to his house or finishes his selling. (suq al-muslimin ka-musalla l-muslimin, man sabaqa ila shay’in fa-huwa lahu yawmahu hatta yada‘ahu.)”.

(Al-Hindi, Kanz al-’Ummal, V, 488, no. 2688)

it is a sadaqa, with no private ownership …

Ibrahim ibn al-Mundhir al Hizami relates from Abdallah ibn Ja’far, that Muhammad ibn Abdallah ibn Hasan said, “The Messenger of Allah, salla’llahu ‘alaihi wa sallam, gave the Muslims their markets as a charitable gift (tasaddaqa ‘ala l-muslimina bi-aswaqihim).”

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

with no rent charged …

Ibn Zabala relates that Khalid ibn Ilyas al-’Adawi said, “The letter of Umar ibn Abd al-Aziz was read out to us in Madinah, saying that the market was a sadaqa and that no rent (kira’) should be charged on anyone for it.”

(As-Samhudi, Wafa al-Wafa, 749)

with no taxes levied on it …

Ibrahim ibn al-Mundhir relates from Ishaq ibn Ja’far ibn Muhammad, from Abdallah ibn Ja’far ibn al-Miswar, from Shurayh ibn Abdallah ibn Abi Namir, that Ata’ ibn Yasar said, “When the Messenger of Allah, salla’llahu ‘alaihi wa sallam, wanted to set up a market in Madinah, he went to the market of Bani Qaynuqa’ and then came to the market of Madinah, stamped his foot on the ground and said, ‘This is your market. Do not let it be lessened (la yudayyaq), and do not let any tax (kharaj) be levied on it.’”

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 304)

where no reservations or claims can be made …

Ibn Zabala relates from Hatim ibn Isma’il that Habib said that Umar ibn al-Khattab [once] passed by the Gate of Ma’mar in the market and [saw that] a jar had been placed by the gate and he ordered that it be taken away. … Umar forbade him to put any stones on the place or lay claim to it [in any way] (an yuhajjir ‘alayha aw yahuzaha).

(As-Samhudi, Wafa al-Wafa, 749)

and where no shops can be constructed.

Ibn Shabba relates from Salih ibn Kaysan …that …The Messenger of Allah, salla’llahu ‘alaihi wa sallam, …said: ‘This is your market. Do not build anything with stone (la tatahajjaru) [on it], and do not let any tax (kharaj) be levied on it’”

(As-Samhudi, Wafa al-Wafa, 747-8)

Abu r-Rijal relates from Isra’il, from Ziyad ibn Fayyad, from one of the shaykhs of Madinah that Umar ibn al Khattab, radiya’llahu ‘anhu, saw a shop (dukkan) which someone had newly put up in the market and he destroyed it.

(Ibn Shabba, K. Tarikh al-Madinah al-Munawwarah, 750)

Without Market Place there is no Trade

The first thing is that we need to distinguish between trade and monopolistic distribution. Supermarkets do not allow trade to happen, no one can go there to trade. The products that arrive at the supermarket have already been bought by the supermarket. The goods come from a warehouse that distributes them to the network of supermarkets throughout the nation. The goods arrive at the warehouse from producers or other warehouses, from where the goods were originally bought. This is not trade, this is monopolistic distribution.

The most clear evidence that trade has disappeared is that there are no caravans any more. Caravans are the institution of trade. There cannot be caravans if there is no where to go to sell. If there are no markets there will be no caravans. Therefore if there are no markets there is no trade.

To recreate trade we need to recreate Islamic or Open Markets.

Islamic trading generates “New Wealth”

Trade is in itself a source of wealth.

Rasulullah, salallahu alayhi wa sallam, said: “9/10 of the provision comes from trade”. That is like saying that 9/10 of the generation of wealth comes from trade. If this is so important to us, it is obvious that its defence is proportionally important. Considering that trade is no longer possible without market places, we can conclude that we have eliminated 9/10 of our provision. To re-establish trade must be considered a priority of every responsible government, and this primarily means the establishment of networks of Islamic Markets.

We are unfortunately living at a time in which people do not regard trade as something important. The result of this is that economists have concluded that traders should be eliminated from the economy in favour of distributors: supermarkets are encouraged while old markets are closed down.

Another result of this philosophy is that real traders are thrown into the streets with no infrastructure to support them (street markets), while bankers (usurers) sit in palaces. The reverse of this is the Islamic way. Umar ibn al-Khattab, radiallahu anhu, considered the traders that came to Madina, his guests. Consequently, all Islamic cultures have treated traders with great esteem. They build for them palaces in which to trade. See for example, the markets of Istanbul, Samarkand or Isfahan. In the past our traders were in palaces while the usurers were in the streets chased by the police. Today the reverse is the norm.

Traders are a source of wealth for us and adequate infrastructure should be given to them. This is what the Islamic market provides for them.

The important thing is that the Islamic Dinar associated to Islamic trading can generate new wealth with those people in society that economists reject. The Islamic Dinar can generate a new wealth with the rejects of the present economy, that is, the real economy.

The fate of the Islamic Dinar and the Real Economy are bound together through Islamic trading.

The Islamic Trading Bloc

The implementation of Islamic trading has its maximum political reality in the establishment of an Islamic trading Bloc. The establishment of the Islamic trading Bloc will have three conditions:

1. It must be based on the use of the SHARIA CURRENCY as currency rather than the creation of yet another paper currency.
2. It must be introduced gradually and should be offered as a choice to the Muslim community
3. It must be accompanied by the establishment of a trading infrastructure based on Islamic Markets.

The Core Mechanism of an Islamic trading Bloc

The minimum mechanism that can guarantee a sustainable and continuous growth of the use of the Islamic Dinar as currency consisting of three elements i.e. the Payment System, the Market Network and Investment (qirad).

All three elements enhance trade and synergise one another

	Provides a stable and universal currency

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My Definition of “The State”

Introduction

A highway robber leaps from behind a tree, sword in hand, and confronts a well-dressed gentleman. “Hand over your money,” the robber cries. His intended victim says, “You fool!… I’m the mayor!” The robber lowers his sword and sticks out a hand. “…hand over MY money.”

Good poetry like humour gives new meaning to words. Poetry should provoke introspection forcing to see issues and problems from a new perspective. This is important, since most of us uncritically and subconsciously absorb our political and moral stands from parents and friends, from schools and media. As such, poetry can be profoundly disorienting and equally threatening to fragile self-concepts. Viewing the world through new lenses requires a period of unsettling adjustment. To be effective, then, a poet must keep his audience off-balance, leave them reeling. Inducing comfort is most emphatically not the goal of a good poet.

We are simply pointing out that we cannot give validity to a word simply because we are comfortable with it. The value of a word, is that it helps you to discern, to discriminate, to identify. In our case, a good definition of State should give us understanding of this institution and by extension of our society. It should help us to act. And because we are Muslims this implies understanding from an Islamic perspective, and acting means acting fisabilillah. It is in this light that I value the necessity to create a new definition of the State. Whether we like it or not, our cultural and historical values are embedded in language. When we challenge language -this is what a poet does- we are challenging the cultural and historical values of our society. For us this should be done in order to establish our own Islamic understanding of life. This is important. Our language should reflect who we are.

Words are windows that open “worlds” before us. Which words we use and how we use them determines the way we see the world. I forged this definition of the State out of necessity. I was not happy with the present definitions. They were too vague to create identity or too partisan to recognise a problem. They all seemed to ignore what I call “the event”. This event is the marriage between banking and government that took place somewhere in the past. This event was not nothing. It was a huge evolutionary step in our history and the consequences have been even bigger as they reached our days. As a result of this event the way people interacted with government changed, including how revenues were collected, the creation of debt, the way of accumulation of capital, the meaning of money and investment, and many other collateral issues involving the basis of trading and finance between countries. In short, almost every way in which we relate to each other changed for ever. The world changed for ever after this event. Yet, I realised, no one had named this new institution. This institution was more than government, it was more than banking. But it had no adequate name. This is a danger, because if you cannot name it, you cannot think it.

The Event

The event that I am referring to took place in England in the year 1694 with the birth of the Bank of England as the national Bank. The Bank of England was not the first national bank. Two other national banks were created before the Bank of England. The first national bank was the Banco de Spiritus Sanctus or the Bank of the Holy Spirit (amazing name!) which became the first national Bank in 1605 of, which State? None other than the Vatican. The Bank, founded by Pope Paul V, has ceased to perform financial miracles for the Popes -now it is in the hands of the Italian State- but the Vatican possesses its own official bank, piously called the Institute for Religious Works. The second was the Bank of Sweden (Sveriges Riksbank) founded in 1668. The reason why we have chosen the Bank of England as the birth of the State is because only England with the beheading of their King and the creation of the Parliament had the right social chemistry to trigger the unprecedented unfolding of this institution, the State. Only in England, and for the first time, the debt of the Sovereign had the conditions to become what became known as the National Debt. A concept whereby the debt incurred by the Sovereign, no longer belongs to him, but to the entire nation.

This does not mean that in the year 1694, the State, with all the features with which we know today, suddenly appeared. No, the State gradually developed into its full flesh in the years to come. What took place in this year, was the coming together of two institutions banking and government in a new fashion which created the necessary mixture for the unfolding of the State. We can say that the seed of the State was created. This seed contained the potential for all the features that were to unfold in the years to come. The seed contained the forerunner elements of the Central Bank, fiat money and the national debt. How did it happen? And what happened?

The Revolution over, and the Dutch William of Orange on the throne of England (1689-1702) a climate of discovery and experimentation with money matters was flourishing in England. It was a time of treasure hunting companies, “quick money making” schemes and new banking designs. It was all further encouraged by the small boom of 1692-5. In this climate the Bank of England was born.

At the time England was financially exhausted after half a century of war. Unable to increase taxes and unable to borrow, Parliament became desperate for some other way to obtain money. There were two groups of men who saw a unique opportunity arise out of this necessity. The first group consisted of the political scientists within the government. The second was comprised of the monetary scientists from the emerging business of banking.

The opportunity came in 1694, when the King needed money to raise an army for the war with France. The King went to the rich merchants and goldsmith bankers in London to acquire this money. Several schemes for a public bank were submitted. Finally, William Paterson, a Scotsman, fronted several syndicates and made a proposal in imitation of similar successful ventures in Italy and the Netherlands (especially the Bank of Amsterdam founded in 1609 -seen by many as the father of modern banking). After a few failed attempts, he and his merchant backers eventually proved successful.

Patterson wrote a brief presentation for the initial stock offering entitled “Brief Account of the Intended Bank of England” [quoted by Prof. Carroll Quigley of Georgetown University, in “Tragedy and Hope: A History of the World in Our Time”, 1966], in which he wrote: “the bank hath benefit of interest on all moneys which it creates out of nothing.” This simple sentence, by the world’s first Central Banker, was going to become the key issue to the unfolding monetary destiny of the world for the next three hundred years.

The meaning of the sentence is that “under the government’s authority” the Bank of England would issue paper money created “out of nothing”, which would in turn be loaned at interest to various borrowers. The commercial banks had done this before, but this time it was endorsed by the “authority of the people”, the Parliament. The meaning of “out of nothing” is that the notes of the Bank of England were only partially backed by gold or silver, not to the point of complete convertibility. From the very beginning the Bank never professed to make its issues of notes square exactly with its coin and bullion, though, of course, it made its liabilities square with its assets. This issue has remained a mystery for most people even today. How can the liabilities be equal to the assets, and yet there are more notes than specie? The issue is at the heart of banking itself, but we leave this issue of “magical” accounting for another occasion, we will simply refer to it as fractional reserve banking, meaning, the ability of the bank to lend more than what it holds in cash or creating money “out of nothing”.

By early May 1694 the parliament passed a statute appointing a new tax on ship tonnage expected to raise £140,000 per year. £100,000 of this was earmarked to pay interest (at 8% per annum) on a new £1.2 million loan which the government was going to borrow from the Bank. The loan would “only” cover about ¼ of that year’s expenditures upon the Nine Years War (1689-97) with France.

The £1.2 million loan was paid into the Exchequer in instalments between August and December. Shareholders received interest of 8% on the full amount of the loan, although they had “only” had to contribute £720,000 in actual cash, the rest had been created “out of nothing”. The loan was paid to the government with the cash of the shareholders, who by November had supplied 60% of the amounts for which they had subscribed. The rest was paid with so-called “sealed bills”: £1000 paper notes stamped with the Bank’s corporate seal. The government used these bills in turn to pay its suppliers. Since they bore interest at about 3% per annum, many were held as investments; those few that were returned to the Bank for cash were reissued and employed in further loans.

The Bank had a double function: it managed the Government’s accounts and made loans to finance the Government but it also operated as a commercial bank: it took deposits and issued notes to private customers. Much of the cash from the shareholders was used not for the war loan but to circulate additional sealed bills issued out to private borrowers, raising returns even further.

The authorizing statute had imposed two important limitations: the Bank could lend no more than £1.2 million to the government without parliamentary dispensation and could issue no more than £1.2 million in sealed bills. The first limitation actually proved an asset, since over the next year or two Bank directors often made it an excuse for refusing further loans to the Crown (loans they were reluctant to make in any case). But the ceiling on sealed bills was a real constraint. Bank directors evaded it by issuing what they called “running cash notes”. Instead of being stamped with the Bank’s seal, these small-denomination notes were merely signed by its cashiers and they bear no interest (unlike the sealed bills). The Bank’s numerous critics tried to make an issue of this, but the notes continued in circulation. These “running cash notes” became in fact the forerunners of present-day paper currency.

By February 1695, the bank had advanced to the Government not only the whole of its original capital of £1,200,000, but also a further sum of £300,000. But there were even bigger remittances to follow within the next eighteen months. The government could not stop borrowing, breaking the limitations that it had imposed on itself. The government had just discovered the possibility of an “almost” endless means of finance. But of course, the problems started to come.

The new money created by the Bank of England splashed through the economy like rain in April. Consequently, when these plentiful banknotes landed in the other banks’ hands, they quickly put them into the vaults and then issued their own certificates in even greater amounts. As a result, prices doubled in just two years. Then, the inevitable happened: There was a run on the bank, and the Bank of England could not produce the coin. In May of 1696, just two years after the Bank was formed, a law was passed authorizing it to “suspend payment in specie” [suspend payment in gold for the face value of the note being presented]. By force of law, the Bank was now exempted from having to honour its contract to return the gold. Fiat money had been born. With it one of the key features of the modern State had been born.

With this event two other institutions had been born: the Central Bank and the National Debt. That Central Bank is still with us and has become a dominant institution in today’s economy and that national debt we, the citizens, still carry forward and which in aggregate, is in fact unrepayable. The citizens of Britain still have not been able to repay their debt three hundred years later. Today the national debt of Britain is 1 trillion pounds.

In 1694, the Bank of England was not yet a central bank in the modern sense but it was the seed for the central bank. The capacity to act as lender of last resort and regulator of financial activity within the economy at large was only developed gradually during the next century as the complexity of the financial system grew.

As the Government borrowed more and more money, these outstanding loans were called the National Debt. This debt was different from before. Sovereign’s debt had always existed. However, how the king could make his promise to pay trustworthy, was the critical problem. Defaulting had become a common phenomenon in England since the medieval period. In the medieval period, tax collection was a very difficult task; the king often relegated local agents and office holders to collect taxes for the sovereign, a practice curiously called tax farming. Generally, these agents or office holders had tax exemption privilege, narrowing the tax base and reducing tax revenue. Tax was never enough. Borrowing against the taxes was the only choice. For the king the best choice was to default to his creditors. Although cooperation with the creditors seem to be the best choice, this was not always possible. Creditors (later bankers) and Kings had a difficult relationship. Cooperation could not crystallise. This changed for ever with the Bank of England.

The establishment of the Bank of England altered the sovereign’s (State’s) incentives to accept debt. The debt could be easily distributed to all the people by a new mechanism: the issue of non-redeemable or partly redeemable paper money. Thanks to the Bank the State was capable of making its debt trustworthy. It was not “his” debt it was the “national” debt. The State provided the Law to make the new money legal, the bank could provide almost endless amounts of that money. The two institutions seemed to gain, they could cooperate for the first time. This event altered the sovereign’s (State’s) incentives to accept more debt. From this moment onwards, the raising and raising of debt would reach unprecedented levels in history. This debt fuelled the extraordinary rise of the banking institution and brought it from the fringes of society to the very centre by becoming the new master of the economy.

The Need of a Name

From the day of the Caesars to today, we have seen a great variety and many forms of government. The word “form of government” already calls upon certain familiar definitions: anarchy, monarchy, oligarchy and democracy. In this classification the word State stays out. The State is not seen as a form of government, it is rather identified as a higher institution that encompasses government. Nowadays, we vaguely speak of the State as comprising the land, the citizens, its laws, its culture, its economy and the government. For some the word equally encompasses the Egyptian State of Pharaohs, the State of the Caesars, or today’s British State; and encompasses regimes as different as the Soviet Union or German Third Reich. This “all encompassing” meaning of the State does not tell us anything about the crucial event which we want to describe.

Let us go back to our own Western culture in search of some help. Of all revolutionary movements in Western Europe, the one that resisted more ferociously the advent of the State was the anarchist movement. The anarchists since Proudhon spoke “against the State”. Often, this is mistakenly seen as a proposal for “no-government”. But this is not what they were saying. Since we are not here to study the anarchist movement, but in search of a new meaning, or perhaps, we should say an original meaning, I would explore the “word” of an artist and a poet who sympathized with them. This artist is Richard Wagner, whose great hero was Bakunin (he saw him as Siegfried -the hero born without fear). He wrote in the barricades on Dresden that the new society will be based on “government without State”. What he meant is that government is acceptable, the problem is the State. He was referring to the State as some addition to the government that needed to be removed. With this sentence, although still lacking the substance for a complete definition, sets us on a different path to find a “meaning” for the State.

The sentence “government without State” points to two possibilities: one is a “government with/within State” -this is seen as a problem-, and then “government without State”, seen as the solution. These two possibilities already point to an event in which from one we move to the other. It already indicates a point of devolution or evolution depending of the direction. The important thing is that it recognises the existence of a critical event, a turning point. This event, even without understanding what it is, points to the originality of its meaning. It is from here that we can ask the following questions: what was that event? What was that event that put government and State together? What is the State that was added to the government? When did it happen?

Here (when the State is seen as a problem), our proposed definition stands out thriving with answers. Our equation “State = government + banking”, and our solution, “eliminate banking”, acquires a dynamic force. It explains this event that Wagner was pointing out. Our definition gives full meaning to the sentence “government without State”. It now reads, the problem is not government, the problem is that banking (the cause of the problem) was mixed with government. This mixing or marriage created the State. In my reading of Proudhon and Bakunin against the State, this “fine” tuning, this critical discrimination was missing in their undestanding of the State. In my view, this missing element haunted like a dark cloud the revolutionary attempts of the XIX century to eliminate the State and still rob us today of any decisive understanding of this key institution that can lead to a change.

What happened in Britain at the end of the XVII century has not had a name for too long. It needs one. My proposal to call it the birth of the State, brings forward the possibility to understand this phenomenon and by extension to understand the times we are living in.

Is the Word “State” the Right Word for This New Institution?

I believe it is. The word State is in itself in need of definition. The first issue is that it is acknowledged that the State is relatively a new phenomenon in history. Andrew Vincent, in his book “Theories of the State” writes:

“Many anthropologists and sociologists would argue that there is a rich array of pre-State and Stateless societies. Most scholars now agree that the State is a comparatively recent phenomenon in terms of the history of social existence. If these societies were subject to authority and rules, it is feasible to speak of politics existing but not the State”.

From a purely historical point of view, the first modern use of the word State is attributed to Machiavelli (lo stato) in his “The Prince”. Machiavelli was fascinated by Cesare Borgia, not just his person, but rather the “the structure of the new state” that had been created by him. Machiavelli was the first thinker who completely realised what this new structure meant. Yet, according to JH Hexter, who examined the 115 uses of “lo stato” in The Prince, Machiavelli relates not to the State in the modern juridical sense, but rather to the medieval idea of “standing” or “condition” as in the term “status regni”. He argues that the modern use of the word, may have been inspired by Machiavelli, but it was only forged by French sixteenth-century thinkers like Du Haillan, Bude, and Bodin and politicians like Richelieu. In England, nevertheless the word came much later and the preferred words in mainstream political thought were still in the sixteenth century, commonwealth, kingdom or realm.

For Jean Bodin the issue is related to the idea of sovereignty. France was passing rapidly out of feudalism in the French Wars of Religion. Sovereignty was for him a “supreme power over citizens and subjects unrestrained by law”. This attribution was still directed to the King. Only when the figure of the king disappears in the seventeenth and eighteenth century that the word State gains its supremacy. The sovereignty is then expressed in the “personality of the State”. In this idea the attributes of the person, the capacity to perform duties and possess rights, the ability to act and so forth, are attributed to the State. The personality is legal, not physical or psychological. At this point, the State acquires its modern sense as “the abstract person with the authority”, not connected in any way with individuals.

This historical account of the usage of the word, coincides with the timing of what we call the event, which took place in Britain after their king had been beheaded. In my view, this transferral of sovereignty from the king to the State is critical in giving strength to the modern usage of the word by a recognition that a new entity had been created; although not quite in terms of the event in which I formulate my definition, but yet it is simultaneous to it.

In relation to government Vincent argues the following:

“In fact government is a far older term that State or administration. Historically and anthropologically it is clear that both the concept and practice of the State existed before the State. Government can and does without the State.”

For me this proves that there is an event that needs to be located in history by which the transition takes place. Naturally this birth is owed to be contested by different political and historical opinions, since the political world is already saturated with different ideas and values. Yet we must seek coherence and consistency in order to gain understanding of the past.

Finally Vicent argues:

“The State is a good example of such essential contestability. Yet one should be wary of holding to essential contestability as a dogmatic assumption. It is useful in educational terms to acknowledge that there are diverse views of the State which should be explicated. The State is certainty not one thing. It needs to be unpacked. But we do not need to go on from this to the conclusion that there are either in principle no grounds for finally adopting a particular view of the State or that the State must always, in all situations in the future, be subject to dispute. There are certain logical oddities in such a view which link up a dogmatic adoption of essential contestability. There seems to be an implicit claim that all concepts now and in the future must in principle be subject to such dispute. This is an inverted form of essentialism which makes the thesis of essential contestability self-refuting. A more balanced thesis is that at the present moment there are neither completely satisfactory explanations of the State nor ultimate empirical grounds which can be agreed to test theories. We need to pay attention to the way in which the concept has been used. It reflects values and views of human nature and constitutes political reality. Since theories of the State reflect such fundamental values and self-images, it is important that they should be open to discussion, criticism and disagreement. To dispute about the nature of the State is to dispute about the character of social existence. It is doubtful whether endless dispute is either possible or fruitful.”

Is the word State the right word for the new institution? I believe it is. We, Muslims, need to have our own definition, our own understanding of this “alien” institution in the light of our world view. It is only in this light that my definition has value or not.

The Political Value of My Definition

Saying “the State was born out of the marriage of government and banking” calls for a re-evaluation of what political activism means and can do. For centuries, any civic attempt to curve the increasing power of this institution has always knocked at the door of government. Any protest reflecting social anger was always directed at the political agents of the State, namely the Parliamentarians or in their defect the “tyrant”. The problem is that the government has been entrenched in its role out of a basic necessity. Government is necessary. The attempt to remove the State, seen as removing the government is helpless, and even if successful, pointless: the State still remains there even if you “change” (since you cannot truly eliminate) the government.

Our definition opens a new window, a new door. The political value of our definition is that social protest must have a different focus: not against the government, but against banking. This opens a new reading of revolutionary strategy: the issue is not government and its political agents, the issue is banking. Our definition re-invents the meaning of social protest by indicating that the problem is banking.

To fight banking is very different from fighting the government. Government is necessary, banking is a newcomer. From the point of view of us, the Muslims, the affair is much clearer. Banking is haram, government is halal. This definition forces Muslim political activity to gain a completely different meaning and consequently to gain a new reputation and standing. We can, for the first time in a hundred years be understood. If Muslim protest is re-directed from the political agents to the banking system we will obtain the favour of society. We can become its leading force. In itself this can create a new tool of da’wa. We can channel the dormant social protest to a new path in which success is guaranteed. Allah has declared war on riba. Allah is the guarantor that this strategy will be successful.

This is the potential of a “word”. As we said on the beginning: “Words are windows that open “worlds” before you”. The State, as we see it, has been for too long unnamed. Our word “State” brings clarification which we desperately need so that Muslims can re-think and re-design our social strategy. This meaning that we are proposing here, can bring the Muslims to the frontline of political activity in a way in which we can succeed. This new meaning can become a key to our future as the masters of the XIX century. We will be able to channel all trade unions, consumer unions, civil liberty groups and social movements in general into a new possibility of political activism, in which we are the leading force.

Revolution against government implied violence and terrorism (Bastille, Russian Winter Palace, British Gunpowder plot against Parliament). Fighting banking has a social modality, it entails the abandonment of the key element on which banking continues to exist: paper money. Fighting banking is to return to the true form of money on which society and trading can be constructed without banking.

Conclusion

The word State remains vague and misunderstood in our language. We, Muslims need to provide our own definition of this institution. The event that in my view is the determining factor for the creation of this institution is the establishment of the Bank of England in 1694. With this institution the State was born and simultaneously three other elements of the modern State: National Debt, fiat currency and Central Bank. The essence of this new institution is the mixing for the first time in history of two other institutions government and banking. This gives us the equation on which I base my definition: State = government + banking. On the basis of this we can formulate the idea of the problem of the State, namely, banking. Government is halal, but banking is haram. With this understanding, the struggle against the State should be read as the struggle against banking. This clarification is in my view the true value of my definition. In this way, a word is not only a window, but a weapon.

This definition should also help to eliminate the confusion created by terms such as “Islamic State”. This rejection includes also other terms such as Islamic banking or Islamic constitution or Islamic democracy. These institutions are “alien” to us and they cannot be simply “islamised”. When we have our own terms and models, we do not need to import alien ones. The validity of the term State, should therefore, reflect and explain its alien nature, so that we are capable of thinking and dealing with it.

Allah is our Guide. There is no power except by Him. There is no victory except by Him. Peace and blessings from Allah on our beloved Prophet, his Family and his Companions. He is our model in this world.

A highway robber leaps from behind a tree, sword in hand, and confronts a well-dressed gentleman. “Hand over your money,” the robber cries. His intended victim says, “You fool!… I’m the mayor!” The robber lowers his sword and sticks out a hand. “…hand over MY money.”

With its foundation in twisted and skewed expectations, good humor can be a useful tool in encouraging to question previously unexamined ideas and beliefs.

Words carry that capacity too. Good poetry is about giving new meaning to the words. Poetry should provoke introspection forcing to see issues and problems from a new perspective. This is important, since most of us uncritically and subconsciously absorb our political and moral stands from parents and friends, from schools and media. As such, poetry can be profoundly disorienting…and equally threatening to fragile self-concepts. Viewing the world through new lenses requires a period of unsettling adjustment. To be effective, then, a poet must keep his audience off-balance; leave them reeling. Inducing comfort is most emphatically not the goal of good poet.

I am not claiming to be a poet, I simply trying to say, that we cannot give validity to a word simply because we are comfortable with it. For me the value of a word, is that it helps you to discern, to discriminate. In our case, a good definition of State should give us understanding of our society, it should help us to act. And because we are Muslims this implies understanding from an Islamic perspective, and acting means acting fisabilillah. It is in this light that I value my definition. Whether we like it or not, our cultural and historical values are embedded in language. When we challenge language -this is what a poet does- we are challenging our society. For us this should be done from our own Islamic understanding of life. This is important. Our language should reflect who we are.

What I call the event, defines a before and an after in terms of the nature of government: fiat currency, national debt and central banks, are not just nothing. The institution that emerged in Britain after 1694 was new. And it was destined to change the face of the Earth. Yet it has no name. Without name it cannot be thought.

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The Judgement on Riba

The Judgment on Riba

It is generally assumed that from the point of view of material wealth, things have never been better than today. That, despite just crossing over the most murderous century in human history which saw the first-time use of weapons of mass destruction on civilian population, the colossal annihilation of the eco-system and fauna, and the largest numbers of starvation victims known in history. All past and present miseries are forgotten before the general assumption that the average person today enjoys a standard of living not equalled in any other time. Yet, it has not been the same for all people of the world. While a material improvement has been achieved for a relatively small portion of mankind, the bottom half still lives on an income inferior to the poverty line of 2 USD a day, and collectively inferior to the income of the 387 largest individual earners. This disequilibrium in wealth goes hand in hand with an equal in political and military imbalance that has turned one nation in particular into the police ruler of the world.

During this period of massive shift of wealth to a small corner of the world, Muslims have lost an immense part of their past economic and political status. The political unity represented by the Khalifate that granted Muslims a voice in world affairs was devastated, and instead a trail of tiny nations emerged under the auspices and new legal frame of the UN. Large parts of our population belong to the bottom half of world earners and our combined GDP does not reach 1/10 of the US. Politically divided, and losers in the economic sharing, Muslims only face the prospect of being underdogs in the present economic system. Under this regime a continuous erosion of our social and cultural life is inevitable which in turn results in the increased anger and frustration of our youth.

This present system of economic disequilibrium is self-preserved by diverting attention away from economic matters into political matters. The economic system which causes the imbalance is taken for granted and individual political tyrants become the focus of political struggle. Under these circumstances the economic system remains unquestionable and therefore its continuation is granted.

At its core this system of disequilibrium which we call capitalism is based on usury. Usury is in itself disequilibrium. Mechanised usury through the banking system has turned a criminal contract into a means of economic domination. For as long as we remain slaves of riba our Muslim nation will remain enslaved.

A society which misunderstands the dynamics of the world will find it difficult to focus in establishing its goals. These are swept away in the emotion of the moment. And so, acts which are intended ‘to do good’ are lost by the lack of direction. In these circumstances, no amount of effort will prove fruitful.

Understanding Riba is essential to understanding capitalism. The Islamic understanding of riba opens the path to restore our own mu’amalat and thus create the tools that can overcome the present system. Riba is not only negative. It opens the path to the positive construction of the halal. Only when we remain confused between the halal and the haram can our enemies find it easy to destroy our efforts. In this document we intend to cast some light on this matter of Riba.

Allah says in the Qur’an:

“Allah has permitted trade and forbidden usury”

Riba represents the opposite of trading, it is the corruption of trading. There cannot be trading with riba, nor riba with trading. Yet, riba has become the core of today’s face of kufr: capitalism. For this reason, riba is the most important political issue facing our Muslim nation today. Riba affects every aspect of our life and it is traceable to two main institutions: the Bank and the State. Despite its importance this understanding remains superficial for most Muslims. Most people simply think that riba is merely interest. The reality of riba is a much more complex affair. This misunderstanding is not just a miscalculation; it is the product of a mis-education and indoctrination which has resulted from two phenomena: one, the destruction of the political power of the Khalifate, and two, the process of the so-called “Islamic reform” which followed. This misunderstanding opened the gates to the islamisation of the most important institution of capitalism: the bank. What the open market-place is to trading, the bank is to riba. A ‘reformed riba’ would allow the new promoters of the Islamic bank to justify their actions. It is for this reason essential to return to a correct understanding of this key term in the fiqh, that can allow us to discern what is haram and what is halal. This is crucial to overcome capitalism, and its illusion of power.

This brief introduction will try to outline as plainly as possible the issue of Riba in Islamic Law, and to undo the misunderstanding created by the ‘reformers’ and modernist scholars.

Riba literally means ‘excess’ in Arabic. Qadi Abu Bakr ibn al-Arabi, in his “Ahkamul Qur’an” defines it as: any excess between the value of the goods given and their countervalue (the value of the goods received). This excess refers to two matters:

1] an extra benefit arising from unjustified increase in the weight or measure, and
2] an extra benefit arising from unjustified delay.

These two aspects have led our scholars to define two types of riba. Ibn Rushd said:
“The jurists unanimously agreed about riba in bay’ (trade) that it is of two kinds: delayed (nasi’ah) and stipulated excess (tafadul).”

That is to say, there are two types of riba:

1] Riba al-Fadl (excess of surplus or disparity)
2] Riba al-Nasiah (excess of delay or deferment)

Riba al-fadl refers to quantities. Riba al-nasiah refers to time delay.

Riba al-fadl is very easy to understand. In a loan, riba al-fadl is the interest that is overcharged. But in general it represents when one party demands an additional increase to the counter-value. One party gives something worth 100 in exchange for something worth 110. This is also the forbidden case when two sales transactions are linked by a single contract (known as ‘two transactions in one’), in which one party is obliged to sell something at one price and to resell it after a time to the original seller for a decreased value. As a matter of fact, this is only a subterfuge to disguise the loan with interest under the pretence of a sale. Nobody needs these subterfuges today because you can get the loan directly in the bank. But the Islamic banks have resorted to this old trick to deceive their customers under the misinterpreted name of murabaha.

Understanding Riba al-nasiah is more subtle. It is an excess in time (a delay) artificially added to the transaction. It is an unjustified delay. This refers to the possession (‘ayn) and its non-possession (dayn) of the medium of payment (gold, silver and food-stuff -which was used as money). ‘Ayn is tangible merchandise, often referred to as cash. Dayn is a promise of payment or a debt or anything whose delivery or payment is delayed. To exchange (safr) dayn for ‘ayn of the same genus is Riba al-nasiah. To exchange dayn for dayn is also forbidden. In an exchange it is only allowed to exchange ‘ayn for ‘ayn.

This is supported by many hadith on the issue. Imam Malik related:

‘Yahya related to me from Malik that he had heard that al-Qasim ibn Muhammad said, “‘Umar ibn al-Khattab said, ‘A dinar for a dinar, and a dirham for a dirham, and a sa’ for a sa’. Something to be collected later is not to be sold for something at hand.'”

Yahya related to me from Malik that Abu’z-Zinad heard Sa’id al Musayyab say “There is usury only in gold or silver or what is weighed and measured of what is eaten and drunk.”

The hanafi scholar Abu Bakr al-Kasani (d. 587H) wrote:

“As for riba al-nasa’ it is the difference (excess) between the termination of delay and the period of delay and the difference (excess) between the possession (‘ayn) and non-possession in things measured and weighed with different genera as well as in things measured and weighed with the uniformity of genera. This is according to al-Shafi’i (may Allah bless him), it is the difference between the termination of the period and the delay in foodstuff and precious metals (with currency-value) specifically.”’

Riba al-nasiah refers particularly to the use of dayn in the exchange (sarf) of the same genera. But the prohibition is extended to sales in general when the dayn representing money overpasses its private nature and replaces the ‘ayn as a medium of payment.

Imam Malik, may Allah be merciful to him, illustrates this point in his ‘Al-Muwatta’:

‘Yahya related to me from Malik that he had heard that receipts (sukukun) were given to people in the time of Marwan ibn al-Hakam for the produce of the market of al-Jar. People bought and sold the receipts among themselves before they took delivery of the goods. Zayd ibn Thabit, one of the Companions of the Messenger of Allah, may Allah bless him and grant him peace, went to Marwan ibn Hakam and said, “Marwan! Do you make usury halal?” He said, “I seek refuge with Allah! What is that?” He said, “These receipts which people buy and sell before they take delivery of the goods.” Marwan therefore sent guards to follow them and take them from people’s hands and return them to their owners.’

Zayd ibn Thabit specifically calls riba those receipts (dayn) ‘which people buy and sell before taking delivery of the goods’. It is allowed to use the gold and silver or food to make the payment, but you cannot USE the promise of payment. In it there is an excess that is not allowed. If you have dayn, you have to take possession of the ‘ayn it represents and then you can transact. You cannot used the dayn as money.

In general the rule is that you should not sell something which is there, for something which is not. This practice is called Rama’ and it is Riba. Malik continues:

‘Yahya related to me from Malik from ‘Abdullah ibn Dinar from ‘Abdullah ibn ‘Umar that ‘Umar ibn al-Khattab said: “Do not sell gold for gold except like for like. Do not increase part of it over another part. Do not sell silver for silver except for like, and do not increase part of it over another part. Do not sell some of it which is there for some of it which is not. If someone asks you to wait for payment until he has been to his house, do not leave him. I fear rama’ for you. Rama is usury.”’

Rama’ is today the common practice in all our markets. Dayn currency (paper money, receipts) has replaced the use of ‘ayn currency (Dinar, Dirham). This practice is what Umar ibn al-Khattab meant when he said ‘I fear rama’ for you.’

Selling with delay is not restricted to metals, it also includes food. Malik said, ‘The Messenger of Allah, may Allah bless him and grant him peace, forbade selling food before getting delivery of it.’

Therefore, what is prohibited in Riba al-nasiah, is the addition of an artificial delay that does not belong to the nature of the transaction. What does ‘artificial’ and ‘the nature of the transaction’ mean? It means that every transaction has its own natural conditions of timing and price.

A loan involves delay but not quantity excess. One person gives an amount of money, after a period of time (excess) the person returns the money without increase. The excess in time is justified and is halal, but adding an increase in the quantity to be repaid is unjustified and is haram. This is Riba al-fadl.

An exchange involves no delay and no quantity excess. One person gives an amount of money and without delay the equivalent is given. Delays are not justified in an exchange. If you want to delay the payment, you have to make a loan, you cannot obtain a loan disguised as a ‘delay exchange’. Delayed exchange is Riba al-nasiah.

A rental involves delay and excess and it is halal. When you rent a house, you take possession of the house for a time (excess) and you return it plus the payment of a rent (excess). These excesses both in time and quantity are justified and they are halal.
But you can only rent merchandise that can be hired. You can hire a car, a house or a horse. But you cannot hire money or food stuff (fungible goods). To pretend to hire money is to corrupt the nature of the transaction and it becomes Riba.

Thus every transaction has its conditions relating to its nature. You cannot take the conditions of one type of transaction and try to apply them to the other without corrupting the transaction. To add unjustified conditions or excess to a transaction is Riba.

Since dayn is in itself a delay, the use of dayn is restricted to private transactions and it is prohibited as a general means of payment (money). While dayn per se is halal, it is not halal to use is as money. Dayn is a private contract between two individuals and must remain private. The transfer of dayn from one person to another can be done Islamically, but only by the elimination of the first dayn and the creation of a new one. The dayn cannot circulate independently of what it represents. The owner must take possession of the goods and liquidate the dayn. Dayn cannot be used in an exchange and it cannot be used as a means of payment. It is specifically forbidden to use dayn to pay zakat.

The misunderstanding of Riba by Islamic reformers

Islamic reformers and modernist scholars have made a deliberate effort to equate riba with riba al-fadl and ignore riba al-nasiah. Saying ‘riba is interest’ is part of this misunderstanding.

Their misunderstanding starts with the early reformers, especially Rashid Reda. Rashid Reda presented a new classification of Riba. Reda made a distinction in the legal treatment of what he called the ‘riba of the Qur’an’ and the ‘riba of the Sunnah’. Reda maintained that the primary form of Riba was the one prohibited by the Qur’an, and this prohibition is to be maintained at all times. On the other hand, the texts of the Sunnah prohibit a lighter or secondary type of riba – according to him – which is generally prohibited but may be permitted in case of necessity (darurah).

He maintained that the riba prohibited in the Qur’an was the riba known as ‘riba al-jahiliyyah’ (when a person did not pay his due after the stipulated time, the seller would increase the price) which he wrongly equated with riba al-nasiah. And he wrongly said that riba al-nasiah (completely misunderstanding its meaning) was only haram when it involved compound interest, and therefore single interest was excluded from the prohibition. He therefore concluded that simple interest charged or paid by banks was not prohibited by the provisions of the Qur’an at all, nor by the Sunnah.

He also maintained that the remaining prohibition from the Sunnah referred to the specific event of the exchange. Thus for example if two persons were exchanging gold with each other, the amount of gold must be equal in weight on both sides and the two quantities must change hands on the spot, at once. He argued that unlike the riba al-jahiliyyah, this type was not known to the Arabs, since it was difficult to conceive of why two persons would exchange equal quantities of the same commodity at once. Riba al-fadl was seen as part of the abandoned practice of barter when people would exchange gold for gold (and similar), yet it is not practised any more.

The famous hadith of ‘hand to hand’ and ‘equal for equal’, referring to riba, has not been understood by the modernist scholars. They could not understand the relevance of the argument and the form in which it is described. Gold for gold, equal for equal and hand to hand, is a description of the balance of the transactions. One aspect refers to the equivalence in the quantities which refers by default to riba al-fadl; the other to the immediateness of the transaction which refers by default to riba al-nasiah. It discards the possibility of exchanging ‘gold which is not present’ (dayn) for ‘gold which is present’ – ‘ayn. It is very relevant because this is how Muslims got cheated away from their gold, by exchanging it for false promises of gold (the original form of paper money). It follows that in order to make paper money halal, the modernist scholars had to ignore the relevance of this hadith and this formulation.

The hadith refers in the positive to the specific event of exchange of dinars and dirhams of different denomination; in the negative to the impossibility to use promises of payment in the exchange. Both cases are relevant and important to us.

In conclusion, Reda’s views were that:
A] Riba al-nasiah was only riba al-jahiliyya. And only compound interest was forbidden by it.
B] Riba al-fadl was relative to the exchange. It was secondary in nature and it could be accepted in case of necessity (darurah).

The followers of Reda basically adopted the same classification but differed with him on the issue of the compound interest. They agreed that single interest was also haram, but they agreed that darurah can be applied. And they saw riba al-fadl as being secondary, related to what they saw as barter.

The truth is that both riba al-nasiah and riba al-fadl are prohibited by the Qur’an. In fact the Riba of the Qur’an and the riba of the Sunna are exactly the same. The Sunna simply acts as a living commentary of the Qur’an.

The riba known as riba al-jahiliyyah contains both riba al-nasiah and riba al-fadl. In this transaction, the payment is delayed (nasiah) in exchange for an increase (fadl).
But riba al-nasiah involves more than just the riba al-jahiliyyah.

Implications of the modernist position

By ignoring the true nature of riba al-nasiah, modernist scholars have avoided confronting the issue of paper money. Let us look at this issue which the modernists have missed. Paper money can be considered as ‘ayn or as dayn.

A] If we accept the fact that paper money is dayn, meaning that it is an obligation to pay a certain amount of ‘ayn, then paper money cannot be used in exchange and it is forbidden in two practices:

1. Dayn cannot be exchange for dayn. Paper money for paper money is a debt for a debt, which is prohibited. Malik said: ‘[The disapproved transaction of] delay for delay is to sell a debt against another man for a debt against another man.’

2. Dayn based on gold and silver cannot be exchange against gold or silver, because that is against the fundamental command: ‘Yahya related to me from Malik from Nafi’ from Abu Sa’id al-Khudri that the Messenger of Allah, may Allah bless him and grant him peace, said, “Do not sell gold for gold except like for like and do not increase one part over another. Do not sell silver for silver, except like for like and do not increase one part over another part. Do not sell some of it which is not there for some of it which is.’

B] If we accept that paper money is ‘ayn, then its value is the weight of the paper, not what is written on it. If the value of the paper is increased by compulsion, the value is corrupted and the transaction is void according to Islamic Law. Paper money is used by the State as an (illegal) tax and it cannot be presented as an Islamic means of payment.

Understanding riba al-nasiah is fundamental to being able to understand our position regarding paper money. The reason why the modernist ulema took their twisted position on riba was clearly to validate the unthinkable: banking. This justification later turned into Islamic banking. The principle of darurah combined with the elimination of riba al-nasiah has allowed them to justify the use of paper money and in turn to justify fractional reserve banking which is the basis of the modern banking system.

A proper understanding of riba al-nasiah reveals paper money to be a form of riba in itself, because it is intended to be used in a way that is not permitted.

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“Gold and Silver, The Colour of the Shariah-Compliant Money” by Hajj Ahmad Thompson

Gold and Silver – The Colour Of Shari’a-Compliant Money

 

In the Numismatical department of the British Museum there is preserved a curious and interesting gold coin, over twelve hundred and thirty years old, on which is inscribed in unmistakable Arabic characters the declaration that ‘There is no Deity but Allah, The One, Without Equal, and Muhammad is the Apostle of Allah,’ and the further declaration, engraved around the margin of the coin, ‘Muhammad is the Apostle of Allah, Who sent him (Muhammad) with the doctrine and the true faith to prevail over every other religion.’

This coin was engraved, struck and issued by Offa, King of Mercia, or ‘Middle England’ (an ancient Anglo-Saxon kingdom, which extended on both sides of the River Trent from the North Sea to Wales), from 757 to 796.

 

‘Islamic Finance’ and ‘Shari‘a Compliance’

At the Islamic Finance and Trade Conference held in London on the 13th and 14th June 2006, what has come to be known as ‘Islamic Finance’ came of age. Important figures from the financial world gathered to mark its progress and emphasise its potential. In his keynote speech the then Chancellor Gordon Brown spoke of how he wanted “to make Britain the gateway to Islamic finance and trade” and of his ambition “to make Britain the global centre for Islamic finance”. He also spoke proudly of how recent regulatory reforms in England have supported “the development of Shari’a compliant finance” – by bringing Shari‘a compliant products comfortably and inextricably within the Bank of England’s financial fold.

 

Although Mr. Brown quoted some hadith of the Prophet Muhammad, may Allah bless him and grant him peace, it is significant that he did not quote any of those which deal specifically with financial transactions, perhaps because he also referred to his master the Governor of the Bank of England’s speech made the previous evening in Edinburgh in which Mervyn King referred to the twin features of the Bank’s present framework for monetary policy – “namely inflation targeting and independence of the Bank of England”. Having observed that “there are some signs of inflationary pressures in the main industrial countries” and that “the economic outlook is far from certain,” the Governor concluded that the Monetary Policy Committee, which meets monthly to decide on interest rates, would, “month by month, be debating the prospects for the economy in order to decide in which direction, if any, interest rates need to move.”

 

The Chancellor did not have to spell it out, for clearly any accommodation of ‘Islamic Finance’ by a financial system which is based on manipulating interest rates, the prime cause of inflation, could not possibly involve the abolition of usury – which was illegal in England until Henry VIII changed the law. Clearly the quid pro quo for the Bank of England’s recognition and support of ‘Islamic Finance’ is that Muslims are expected to accept regulation by a banking entity immersed in usury – even though, from a Shari‘a perspective, usury is a serious crime, since it always involves exploiting human need in order to gain something for nothing.

 

This between the lines message was also inherent in the speech given by Callum McCarthy, the Chairman of the Financial Services Authority whose four statutory objectives are firstly, market confidence: maintaining confidence in the financial system; secondly, public awareness: promoting public understanding of the financial system; thirdly, consumer protection: securing the appropriate degree of protection for consumers; and lastly, the reduction of financial crime: reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.

 

Mr McCarthy outlined the FSA’s approach towards the regulation of Islamic finance by emphasising the need to provide “a framework which offers those who use Islamic finance, whether from wholly Sharia compliant Islamic banks or by way of Sharia compliant products offered by non Islamic banks, the same degree of protection which is offered to those who use non Islamic finance”. He emphasised the need to promote “financial inclusion” – in other words the inclusion of ‘Islamic Finance’ within the parameters of the main banking system – and with this goal in mind he observed that, “We at the FSA are determined to continue to help the development of Islamic finance in the UK.”

 

Significantly, Mr McCarthy referred to “the special position of the Sharia Supervisory Board within an Islamic Bank”, for without the sanction of a Sharia Supervisory Board, no financial product or banking entity can be deemed ‘Shari‘a compliant’. It is therefore very important to the interests of the banking community that Sharia Supervisory Boards make favourable decisions.

 

The Big Question

The eminent members of the various Shari‘a supervisory boards have worked extremely hard to ensure that their Islamic financial institutions and Islamic financial products are ‘Shari‘a compliant’ – thereby ensuring a healthy number of local, national and international portals through which Muslims’ wealth can be channelled in to support the main banking system. Just as some scientists have agreed not to ask what existed before the Big Bang, however, the Shari‘a boards appear to have agreed not to ask themselves whether paper money – and by extension, digital electronic money – is Shari‘a compliant. This is in spite of the fact that if a transaction is to be truly Shari‘a compliant, then the means of exchange utilised in the transaction must be Shari‘a compliant. So, let us ask the Big Question on their behalf, “Is paper money Shari‘a compliant?”

 

Paper Money

What is paper money? Today paper money is an unredeemable I.O U. For example, I have an English £5 note which records a ‘promise to pay the bearer on demand the sum of FIVE Pounds’ made by Merlyn Lowther, ‘the Chief Cashier’. This promise refers to the time when people (they weren’t referred to as consumers in those days) used to deposit their gold sovereigns and silver florins with the bankers who would give them an I.O.U. in exchange which promised to repay the sum of gold or silver when asked. People soon realised that these I.O.U.s could be used as a means of exchange in any number of financial transactions before being turned back into gold or silver when needed. Then the bankers began printing I.O.U.s even though they were not backed by gold or silver and using them as money – although they did make sure that they still had enough gold and silver to honour any I.O.U. if anyone did ask for it to be redeemed. At this point, this paper money was a redeemable I.O.U. By this means the bankers were able to loan printed money on interest which in turn resulted in more money being created out of nothing – which meant that more I.O.U.s had to be printed.

 

When asked if he would become king of America, a banker replied, “Give me control of the issuing of money and credit and I care not who sits in the house of politics.”

 

In the end, there were so many I.O.U.s – there was so much paper money – that it became no longer possible to honour them. So the bankers changed the rules and informed every-one that they could still use the paper money as a means of exchange, but they could no longer exchange it for gold or silver. In the end gold and silver money was taken out of circulation altogether.

 

Everyone knows, myself included, that even if I manage to locate Merlyn Lowther himself, he is not going to keep his promise. He is not a magician. My £5 note is not backed by gold or silver. It is only a piece of paper with a fancy design and a number printed on it. It is only worth what people think it is worth. Is this piece of paper a Shari‘a compliant means of exchange? No it is most definitely not.

 

An I.O.U. is not a Shari‘a Compliant Means of Exchange

The authority for the prohibition of using an I.O.U. as a medium of exchange derives from the earliest days of Islam:

 

Yahya related to me from Malik that he had heard that receipts were given to people in the time of Marwan ibn al-Hakam for the produce of the market at al- Jar. People bought and sold the receipts among themselves before they took delivery of the goods. Zayd ibn Thabit and one of the Companions of the Mes-senger of Allah, may Allah bless him and grant him peace, went to Marwan ibn al- Hakam and said, “Marwan! Do you make usury halal?” He said, “ I seek refuge with Allah! What is that?” He said, “These receipts which people buy and sell before they take delivery of the goods.” Marwan therefore sent a guard to follow them and to take them from people’s hands and return them to their owners. (Al- Muwatta of Imam Malik : 31.19.44)

 

In other words, an I.O.U. cannot be used as a means of exchange, even if it can be redeemed for gold or silver – because it opens the door to usury. For example, A sells B some goods for 10 gold dinars. B does not have the money on him, so he writes A an I.O.U. and takes possession of the goods. A is not permitted to use that I.O.U. as a means for purchasing goods from C – because the transaction may become usurious. For example, C may only agree to sell goods which are worth 9 dinars for the I.O.U. – for which he will subsequently receive 10 dinars from A. Or perhaps C will only accept 9 dinars in payment for the goods and A can only raise them from D who pays him 9 dinars for the I.O.U. knowing that A will give him 10 dinars for it.

 

Since today’s paper money is an unredeemable I.O.U., it follows that dealing with today’s paper money is in fact usurious – and therefore any financial transaction or financial product which involves its use is unavoidably usurious and cannot therefore truly be described as being Shari‘a compliant, let alone “wholly Shari‘a compliant” to use Mr McCarthy’s phrase.

 

Using digital electronic money is a substitute for using paper money and therefore the same analysis applies. Since virtually all money deposited with banks is used by the banks to provide loans on interest and to earn interest for the bank while not being used by the bank account holder, this means that even if an individual bank account holder does not accept interest on any credit balance, the bank will still be using the money in that credit balance to create money out of nothing by way of interest, either by lending it or by depositing it in an interest bearing account, whether it is overnight or for a longer period. Even if a bank assures its Muslim customers that their deposits will not be utilised to create money out of nothing by placing them in an interest-bearing account, this does not alter the fact that the money itself remains an unredeemable I.O.U. and is therefore itself usurious and accordingly not Shari’a compliant. If an I.O.U. is not a Shari‘a compliant means of exchange, what is?

 

Gold and Silver

Islamic jurisprudence clarifies the difference between gold and silver on one hand and paper money on the other by the legal terminology which is used to indicate their inherent characteristics : Gold and silver are categorised as ‘ayn (tangible merchandise with intrinsic value) – whereas paper money is categorised as dayn (a promise to pay, a debt). An ‘ayn can never be mistaken for a dayn – and vice versa. The Shari‘a permits an ‘ayn to be exchanged for an ‘ayn, but it is not permitted to exchange an ‘ayn for a dayn, nor is it permitted to exchange a dayn for a dayn.

 

Since the time of the Prophet Muhammad, may Allah bless him and his family and companions and grant them peace, the traditional currency of the Muslims has always been the gold dinar and the silver dirham. The Islamic dinar is a specific weight of 22 carat gold equivalent to 4.25 grams. The Islamic dirham is a specific weight of pure silver equivalent to 3.0 grams.

 

Umar Ibn al-Khattab, the second leader of the Muslim community after the death of the Prophet Muhammad, confirmed and established the known standard relationship between the two based on their weights: 7 gold dinars must be equivalent to 10 silver dirhams.

 

Traditionally, the respective weights of the two coins were determined with reference to the weight of a specific number of grains of barley:

 

“Know that there is consensus [ijma] since the beginning of Islam and the age of the Companions and the Followers that the dirham of the shari’a is that of which ten weigh seven mithqals [weight of the dinar] of gold. . . The weight of a mithqal of gold is seventy-two grains of barley, so that the dirham which is seven-tenths of it is fifty and two-fifths grains. All these measurements are firmly established by consensus.” (Al-Muqaddimah, Ibn Khaldun).

 

The gold dinar and the silver dirham have intrinsic value. They can only be devalued either by debasing them with other metals, or by clipping them so that they are under weight.

 

The gold dinar and the silver dirham can be used as a means of exchange – but they cannot be treated as a commodity in themselves, which means that they cannot be rented out (i.e. loaned on interest) and they cannot be replaced by or represented by an I.O.U. or a promise to pay.

 

Although Gordon Brown made no reference to it, an essential element of true Islamic finance is Zakat.

 

Zakat

As well as being one of the five pillars of Islam, an essential element of Islamic Finance is the Zakat tax, the annual obligatory tax on Muslims payable on surplus wealth at a rate of 2.5% – which after being collected is then distributed amongst the poor, thereby ensuring the re- distribution of unused wealth. Zakat can only be paid in gold and silver or in certain goods in kind or in certain livestock, but not with an IOU nor with fulus (small change represented by base metal coinage or paper tokens, with no inherent value) nor with digital electronic money.

 

When the great Maliki ‘alim, Shaykh Muhammad Alish (1802-1881), was asked:

 

“What is your judgement in respect to the paper with the stamp of the Sultan that circulates like dinars and dirhams? Is it obligatory to pay zakat as if it was a coin of gold or silver, or merchandise, or not?” he replied:

 

“Praise belongs to Allah and blessing and peace upon our Master Muhammad, the Messenger of Allah.

Zakat is not to be paid for it, because zakat is restricted to livestock, certain types of grains and fruits, gold and silver, the value of rotational merchandise [stock in trade] and the price of goods withheld. What has just been referred to does not belong to any of these categories.

 

You will find an explanation by making a comparison with the copper coin or fulus with the stamp of the Sultan which is in circulation and for which no zakat is paid since it does not belong to any of the categories just mentioned. It says in the Mudawwana : ‘Those who possess fulus for over a year for a value of 200 dirhams do not need to pay zakat unless it is used as a rotational merchandise [stock in trade]. Then, it should be treated as if it is merchandise.’

 

In the ‘At-Tiraz’, after mentioning that Abu Hanifa and Ash-Shafi’i obliged payment of zakat for the fulus, [it is stated that] since both affirm that the payment of zakat is from value, and considering that Shafi’i has two contradictory opinions about the subject, the opinion of this school is that there is no obligation to pay zakat for the fulus since there is no disagreement about the fact that what applies with respect to the fulus is not its weight or its quantity but only its given value. If the zakat was obligatory [on paper] by considering its substance as a merchandise, then the nisab would not be stipulated according to its given value but according to its substance and its quantity, as is the case with silver, gold, grain or fruits. Since its substance [paper] is irrelevant [in value] in respect to the zakat, then it should be treated the same as the [coins made of] copper, iron or other similar substances.

 

And Allah, ta’ala, is the Wisest. And may Allah bless and give peace to our Master Muhammad and his family.”

 

(Translated from the Al-Fath Al-‘Ali Al-Maliki, pp. 164-165).

 

In other words if Zakat were to be paid on paper money because it was being assessed as merchandise, or stock in trade, then the amount payable would be calculated with reference to its inherent value as paper in terms of its weight – and not with reference to its given value as indicated by the numbers, patterns and promises printed on it.

 

Since a small piece of paper is worth next to nothing, even if Zakat was payable on paper (which it is not), the Zakat payable on many pieces of paper would be negligible – and whether the numbers and symbols £5 or £10 or £50 or £100 or £1000 were printed on each piece of paper, this would be entirely irrelevant as regards measuring their worth as pieces of paper for the purposes of paying Zakat.

 

Since paper does not belong to any of the categories of goods on which Zakat is payable, and since paper money is in practice never treated as stock in trade, and since it is therefore treated as small change, it follows that it is in fact not Shari’a compliant to pay Zakat with paper money or with electronic digital money or with small change – or indeed to have a Zakat bank account, unless that account is an e-dinar or e-dirham account where every electronic dinar or electronic dirham is backed by a physical gold dinar or a physical silver dirham.

 

It follows that any future bona fide Islamic Finance and Trade Conference will need to consider the introduction of a universal Shari‘a compliant means of exchange in which Zakat can also be paid – in other words, in compliance with the Shari‘a of Allah and in accordance with the Sunnah of our master Muhammad, may Allah bless him and grant him peace, not Mervyn, the introduction of the traditional currency of the Muslims, the gold dinar and the silver dirham.

 

The Role of Islamic Banks and Shari‘a Boards

in establishing the Gold Dinar and Silver Dirham

Up to now most Shari‘a Boards have either failed to consider or have studiously ignored or skirted round this fundamental issue. This is either because their members have become so accustomed to using paper and digital electronic money that they do not see what it really is (that is, they cannot distinguish between an ‘ayn and a dayn), or it is because they argue that achieving Shari‘a compliance is an evolutionary process which will take time and therefore it is not feasible to deal with this issue at this stage. This is a false argument and as convincing as the argument which asserts that eventually a pig can evolve into a camel.

 

Sooner or later, the Shari‘a Boards will have to give this matter serious thought, for even if their current financial products are Shari’a compliant in every other aspect, in fact none of them will be Shari’a compliant until the means of exchange which they all utilise is itself Shari’a compliant. Furthermore, the Islamic banks now have the infrastructure by means of which Shari‘a compliant gold dinars and silver dirhams can be minted, distributed and utilised – and therefore any excuse based on the doctrine of darura (necessity) to avoid this obligation is simply no longer valid.

 

The principle of darura does not entitle Islamic banks to pretend that paper and digital electronic money are Shari‘a compliant by virtue of necessity indefinitely. The Shari‘a requires them to strive to move from what is haram (forbidden) to what is halal (permitted) – and since it will not be difficult to do this, this means that they cannot plausibly assert that there is no alternative to paper and plastic, however well qualified the members of their Shari‘a boards appear to be.

 

The Islamic banks and the governments of the traditionally Muslim countries now have the knowledge and the infrastructure and the resources to legally recognise the gold dinar and the silver dirham as their currencies, and to put the gold dinar and silver dirham back into circulation and to operate dinar and dirham accounts, including the use of internet technology, provided that each e-dinar and each e-dirham are backed by an equivalent number of gold dinars and silver dirhams.

 

No financial transaction and therefore no financial product can be truly Shari‘a compliant until these traditional Islamic means of exchange are in use again.

 

By doing this, they will also facilitate the proper collection and distribution of Zakat in gold and silver in compliance with the Shari‘a – which will in turn impede hoarding and ensure the equitable re-distribution of real wealth amongst the poor.

 

We look forward to the day when not only the Islamic Banks and Shari‘a Boards but also the Governor of the Bank of England, the Lord Chancellor and the Chairman of the Financial Service Authority have addressed these issues and brought the practices of their institutions within the parameters of the Shari‘a. Instead of re-defining ‘Shari‘a Compliance’ to suit the usurious banking system, there is an urgent need for the usurious banking system to become Shari‘a compliant if it is to survive and truly flourish. They will then be glad to quote the ayats of Qur’an and the Hadith of the Messenger of Allah, may Allah bless him and grant him peace, which never featured in their speeches at the Islamic Trade and Finance Conference 2006, especially the following ayats in which Allah (God) contrasts riba with bay‘ (trade) and with sadaqa (voluntary charitable giving) as follows:

 

Those who practise riba will not rise from the grave

except as someone driven mad by Shaytan’s touch.

That is because they say, ‘Trade is the same as riba.’

But Allah has permitted trade and He has forbidden riba.

Whoever is given a warning by his Lord and then desists,

can keep what he received in the past

and his affair is Allah’s concern.

But all who return to it will be the Companions of the Fire,

remaining in it timelessly, for ever.

Allah obliterates riba but makes sadaqa grow in value!

Allah does not love any persistently ungrateful wrongdoer.

Those who have iman and do right actions

and establish salat and pay zakat,

will have their reward with their Lord.

They will feel no fear and will know no sorrow.

You who have iman! have taqwa of Allah

and forgo any remaining riba

if you are muminun.

If you do not, know that it means war from Allah

and His Messenger.

But if you make tawba you may have your capital,

without wronging and without being wronged. (Qur’an : 2. 274-278)

 

The reported words of the Prophet Muhammad, may Allah bless him and grant him peace, and the recorded practices of the first Muslim community are equally explicit:

 

‘Abdullah ibn Mas‘ud related that the Messenger of Allah, may Allah bless him and grant him peace, cursed the one who accepted usury, the one who paid it, the witness to it and the one who recorded it. (Sunan of Imam Abu Dawud: 16.1249.3327)

 

Yahya related to me from Malik from Nafi‘ that he heard ‘Abdullah ibn ‘Umar say, “If some one lends something, let the only condition be that it is repaid.” (Al- Muwatta’ of Imam Malik: 31.44.94)

 

Malik related to me that he had heard that ‘Abdullah ibn Mas‘ud used to say, “If some one makes a loan, they should not stipulate better than it. Even if it is a handful of grass, it is usury.” (Al-Muwatta’ of Imam Malik: 31.44.95)

 

Abu Hurayrah related that the Messenger of Allah , may Allah bless him and grant him peace, said, “A time is certainly coming to mankind when only the receiver of usury will remain, and if he does not receive it, some of its vapour will reach him.” Ibn ‘Isa said, “Some of its dust will reach him.” (Sunan of Imam Abu Dawud: 16.1248.3325)

 

Today, most of the world’s population is choking on the dust of usury. The only cure is to restore the use of gold and silver as a means of exchange.

 

The Future

The impulse to make this transition from paper and plastic to gold and silver may well arise not so much out of a yearning to be pleasing to Allah by following His Shari‘a, and not so much out of a desire to be granted a place in the Garden in the next world as a reward for obedience to Allah, and not so much out of a wish to avoid a place in the Fire in the next world as a punishment for disobedience to Allah – but rather simply out of sheer necessity:

 

When it becomes unavoidably apparent that the frail bubble of modern economics must inevitably burst, given that paper money is only intrinsically worth the paper on which it is printed and given that most of the trillions of all the major currencies in the world today only exist as electronic data tenuously located on various hard disks around the world, then prudent investors are likely to exchange their worthless paper and digital electronic tokens for merchandise or property which possess intrinsic value.

 

From the sane perspective of the Shari‘a, it does not take a great deal of financial acumen or expertise to appreciate that most modern financial problems have arisen out of the institutionalisation of usury and that these have ballooned out of control in less than a lifetime – ever since the banking system abandoned the gold standard. Even economists who do not have access to the wisdom of the Shari‘a are beginning to realise that this departure from bi-metal backed currency has turned out to be no more than an experiment which has gone horribly wrong.

 

Historically, as long as the Muslims used gold dinars and silver dirhams, they thrived. Since it is an essential aspect of true Islamic finance that money may be used as a means of exchange, but must not be treated as a commodity (which means that it cannot be rented out – that is, loaned on interest), and since the Shari’a forbids any unjust increment in a commercial transaction (even by so much as a blade of grass), in this past age, usury was virtually non-existent and therefore there was zero inflation. For fourteen centuries, a silver dirham was enough to purchase a chicken and a gold dinar was enough to purchase a sheep. This is still the case today.

 

Since there was no usury and no inflation, other than the Zakat, there was virtually no taxation. As long as the Zakat tax was collected and distributed, there were no national debts. There was therefore no need to increase taxes every year in order to service the national debt, as is the case in most countries today, including the UK. Today elections are won or lost on a party’s taxation policy, not on their foreign policy however misguided.

 

Conclusion

If complicated mental gymnastics are avoided and the simplicity of the Shari‘a is acknowledged and appreciated, then it appears inevitable that the world of finance will one day return to a bi-metal based economy, simply because it is healthier and it has a proven track record of at least five millennia.

 

From a Shari‘a perspective, the return to the use of gold and silver currencies will not be an attempted escape back to the past, but rather it will be a recovery of sanity and true economic stability – and once established it will then and only then be possible to have truly Shari‘a compliant financial products, in substance as well as in name.

 

“Yahya related to me from Malik that Yahya ibn Sa‘id heard Sa‘id ibn al-Musayyab say, ‘Keeping gold and silver out of circulation is part of working corruption in the land.’” (Al-Muwatta of Imam Malik : 31.16.37)

 

To end on a positive note (and definitely not an I.O.U.) our prayer for the various Islamic banks and Shari‘a advisory boards and the Governor of the Bank of England, the Chancellor and the Chairman of the Financial Services Authority is that they do something really worthwhile during their brief time on earth – by bringing back gold and silver into circulation.

 

In the words of the HSBC advertisement, “Shari‘ah isn’t just a privilege, it’s an Amanah,” an amanah which the mountains refused – but which some people in every age have accepted, in compliance with the command of Allah and His Messenger, may Allah bless him and grant him peace.

 

Acknowledgements

Quotations from the Qur’an are from THE NOBLE QUR’AN – a New Rendering of its Meaning in English by Abdalhaqq and Aisha Bewley, (Bookwork, Norwich, 1999). The hadith which are quoted are from Al-Muwatta of Imam Malik translated by Aisha Bewley and Yaqub Johnson (Diwan Press, Norwich, 1982) and the Sunan of Imam Abu Dawud translated by Professor Ahmad Hasan (Sh. Muhammad Ashraf, Publishers, Lahore, 1984). Most of the definitions of Arabic and Islamic terminology are derived from A Glossary of Islamic Terms by Aisha Bewley (Ta-Ha Publishers Ltd, 1998). Much of the conceptual framework and some of the intellectual content of this article are the results of the research of Professor Umar Ibrahim Vadillo, Dean of Dallas College, Cape Town, South Africa and author of The Esoteric Deviation in Islam (Madinah Press, 2003).

 

 

Ahmad Thomson is a practising Barrister specialising mainly in Islamic, Charity, Employment and Discrimination Law (www.wynnechambers.co.uk). He is a co-founder and member of the Association of Muslim Lawyers (UK) and Muslim Lawyers (Europe). He embraced Islam in 1973.

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Statement On the Shariah Currency and Legal Tender

STATEMENT FROM IMAM HAJJ ABDALHASIB CASTINEIRA
Shariah Counselor of World Islamic Mint and Former Imam of the Great Mosque of Granada
Kuala Lumpur, 16th of August 2010

Bismillah irrahman irrahim
Regarding the matter of the Gold Dinar and Silver Dirham and Legal Tender in Malaysia

The Gold Dinar and Silver Dirham known as Shariah currency or Shariah coins in the Fiqh are not legal tender. The Shariah currency has no relation to present fiat currencies on many accounts and should not be legally or practically be compared or treated as the same. The Gold Dinar and Silver Dirham relates to religious matters, most important of which is the matter of payment of Zakat, rather than constitutional matters. Its introduction can only occurred on voluntary basis since freedom is a command from Allah in all commercial transactions including the acceptance of money. Its usage has been throughout history open to Muslim and non-Muslims alike.

All Praise is due to Allah, the most Compassionate, the most Merciful, the Lord of all the worlds, the King of the Day of Judgment, Who has gathered all knowledge in His Essence and Who is the Creator of all knowledge for eternity. All peace and blessings be upon His beloved Prophet, Muhammad, who was not taught by man but by Him, He was the last and most honored Prophet, the last in the chain of prophethood that was brought to this world and has guided us to the right path. May abundant peace and blessing be upon his Family and his Companions, who were chosen among the good and benevolent.
In relation to the present concern of the people regarding the Launching of the Shariah currency in the State of Kelantan on the last 2nd of Ramadhan 1431, as a witness of the momentous ceremony of the Launching in the city of Kota Bharu and as Shariah Counselor of World Islamic Mint, I would like to state in a manner of clarification and support to this initiative the following:
1.- The Gold Dinar and Silver Dirham are not legal tender. Legal tender or forced tender is an offered payment that, by law, cannot be refused in settlement of a debt, and have the debt remain in force. Personal cheques, credit cards, debit cards and similar non-cash methods of payment are not legal tender only the notes and coins of Malaysia are Legal Tender. The issuing of Legal Tender is the exclusive prerogative of the Federal Government and the Government of Kelantan never had nor has the intention to issue Legal Tender as that is legally impossible.
2.- The Dinar and the Dirham are known in the fiqh (see [a] Muqaddimah of ibn Khaldun) as the “Shariah currency”or “Shariah coins”. The term “Shariah coins” is specific to the Dinar and Dirham and is not applicable to any other coin made in gold, silver or any other material. Any other coin is known as “non-shari’i” (ibn Khaldun).
3.-Properly speaking the term “alternative currency” is not applicable to the Shariah coins or currency because the term “Shariah coins” is specific to the Dinar and Dirham and therefore is not alternative to any other coins or currency (non shari’i). It stands on its own without alternative. The use of the expression “alternative currency” can only be used if proper explanation is given in regards to the fundamental differences that exist in relation to the legal tender currencies such as the Malaysian Ringgit. The Malaysian Ringgit is an entirely different legal concept and has different functions. The Malaysian Ringgit is not based on a commodity (in Arabic ‘ayn, meaning tangible merchandise) like the Dinar and Dirham, the Malaysian Ringgit a promissory note (in Arabic dayn, meaning debt or liability) with no intrinsic value (its value as ‘ayn/tangible merchandise is the value of the paper close to zero) but with a fiat value which established by the compulsion law of the Federal Government through the Law of Legal Tender and it can change from time to time. On the other hand, the value of the Dinar and Dirham depends entirely on the market value of the commodity (gold and silver) on which it is manufactured, just like a kilo of rice depends on the value of rice. This difference in important in religious terms, for example, zakat which is a legal obligation of the Shariah has to be paid in ‘ayn but cannot be paid in dayn. (see [b] Al-Kasani). Muslims should, if having the choice(if no choice is given or no ‘ayn is available then darurah, that is exceptionality, is temporarily applicable), pay with ‘ayn rather than dayn.
5.- In linguistic sense, the Dinar and Dirham are not face values, but names that indicate specific weights. The Dinar is a specific weight of 4.25 grams and it is also known as mithqal in Arabic. The Dirham is a specific weight of 2.975 grams or 7/10 of the mithqal. In a way they are legally the same as saying “1kg of rice”. Therefore they are specific weights of commodity (gold and silver) which are mentioned in Qur’an and in many aspects of the Shariah regarding zakat and legal judgments; and thus they cannot be altered in their weight.
6.- In history, the Shariah coins has never been legal tender. In the practice of the early Muslim community the Shariah coins were not only currency used as means of payment. Barley, dates or salt were also used as means of payment and therefore no exclusive right was given to the Shariah coins. The reason for this “freedom to choose the medium of exchange” is that money is considered a part of trading it is regulated under the same Qur’anic injunction that regulates trade: “tijaratun ‘aan taradim minkum”, the meaning of which is “trade according to mutual consent”. “Mutual consent” excludes the idea of compulsion or monopoly in regards to trading. (see [c] Tafsir al-Jalalayn). This is another reason why the Dinar and Dirham are not legal tender and have never been legal tender. Freedom to choose the medium of exchange is a fundamental right granted by Allah to Muslims and non-Muslims alike. The use of the Shariah currency is therefore inclusive of non-Muslims.
7.-The term “currency” is commonly understood as legal tender or as fiat money that carries a face value. Since the “Shariah coins” are not legal tender and do not have a face value the” Shariah coins” should be better understood as a commodity rather than as “currency” in the common use of the term. Regarding current common practices, the use of the “Shariah coins” belongs to the category of barter, that is, the mutual exchange of products and services. It is arguable that in the past, before the introduction of legal tender laws, transactions made with gold and silver were consider normal transactions and the term barter was applicable to all other transactions. Therefore the use of the term “Shariah currency” should be understood with the limitations explained above and in consideration to the historical practice of the Muslims as it is relevant in the Islamic Jurisprudence.
8.- Until very recently in history “paper currencies” were defined as promissory notes in terms of gold and silver. In that sense they represented an ‘amanah’ (trusting wealth to someone who will keep it for you until you demand it) that is an obligation to pay on demand a certain amount of gold and silver. We know from history that this obligation was often not fulfilled and eventually the governments of the world decided gradually to eliminate the obligation to pay in specie altogether. The closest case of the default is the US dollar and its unilateral decision to break their “Bretton Woods Agreement”. This concept of ‘broken amanah’ is known in the Qur’an and carries legal implications as to the prohibition to accept amanah from non-Muslims unless they live under Muslim rule so that they can be obliged to pay their contractual obligations (see [d] Qadi Abu Bakr ibn al-Arabi). This legal injunction, which in theory implies the prohibition to accept British pounds, US dollars, etc. ( or any other currency backed by them), has been abrogated long ago since the colonial days by new laws that consider that this legal injunction is no longer applicable. Under the inspiration of the colonial legal systems, the constitutional Law of all Muslim countries including Malaysia grants the right to accept foreign promissory notes from non-Muslim countries (such as USD) to their own Central Bank (Bank Negara) as a reserve value for their own fiat currency. Because of this many Muslims (and non-Muslims) still mistakenly belief that their own fiat currency is backed by gold and silver when in fact no legal tender in the world is fully backed by specie anymore. The gold dinar and silver dirham are commodities and therefore they are not an ‘amanah: they are a tangible commodity (‘ayn), that is, when you pay with them, you hand over a certain amount of gold and silver and therefore they do not require to be backed by any other asset or authority other than itself. This is another reason why the Shariah currency cannot be compared or considered an alternative to “paper currencies”.
9.- Legal Tender is often a misunderstood concept. Coins and banknotes do not need to be ‘legal tender’ in order to be used as money to buy and perform other transactions for which money is intended. Legal tender must be accepted to settle a money debt. For example, US federal law does not restrict private businesses, persons or organisations in what methods of payment they choose to accept or refuse. Businesses are therefore free to insist on payment by credit card, for example, or to refuse larger denomination banknotes. In Canada for example, only Canadian dollar banknotes issued by the Bank of Canada are legal tender; however, commercial transactions may legally be settled in any manner agreed by the parties involved. A significant amount of business in Canada is transacted in United States dollars, despite United States currency not being legal tender. Legal tender can be refused unless or until a person is in debt, therefore vending machines and transport staff do not have to accept the largest denomination of banknote for a single bus fare or bar of chocolate, and even shopkeepers can reject large banknotes. However, restaurants that do not collect money until after a meal is served (a debt has been created) would have to accept any legal tender. The right of a trader to refuse to do business with any person means a purchaser cannot demand to make a purchase, and so declaring a legal tender other than for debts would be redundant.
10.- The minting of the Dinar and Dirham is a known practice of the Muslims from the early days of Islam. The first dated coins that can be assigned to the Muslims are copies of silver dirhams of the Sasanian Yezdigird III, struck during the Khalifate of Uthman, radiallahu anhu. These coins differ from the original ones in that an Arabic inscription is found in the obverse margins, normally reading “in the name of Allah”. Since then the writing in Arabic of the name of Allah and parts of Qur’an on the coins became a custom in all minting made by Muslims. In the year 75 (695) the Khalif Abdalmalik ordered Al-Haddjadj to mint the first dirhams, officially establishing the standard of Umar ibn al-Khattab, radiallahu anhu: 7/10 of the mithqal. The next year he ordered the dirhams to be minted in all the regions of the Dar al-Islam. He ordered the coins to be stamped with the sentence: “Allahu Ahad, Allahu Samad”. The minting of the coins is considered an obligation of the Sultan that needs to be followed (see [e] al-Qurtubi).
And Victory belongs to Allah. In Him we trust and praise belong to the Lord of the worlds and peace and blessings on His Messenger.
The slave of Allah, Hajj Abdalhasib Castineira, in Kuala Lumpur, on the 5th of Ramadhan, 1431.

 
NOTES
A] Imam Abu Zayd Ibn Khaldun (d. 1406)
“The Revelation undertook to mention them and attached many judgments to them, for example zakat, marriage, and hudud. Therefore within the Revelation they have to have a reality and specific measure for assessment (of zakat, etc.) upon which its judgments may be based rather than on the non-shari’i (other coins).
Know that there is a consensus (ijma) since the beginning of Islam and the age of the Companions and the Followers that the dirham of the shari’ah is that of which ten weigh seven mithqals (weight of the dinar) of gold… The weight of a mithqal is seventy-two grains of barley, so that the dirham which is seven tenths of it is fifty and two fifths grains. All these measurements are firmly established by consensus.”
“Al-Muqaddimah”

B] Imam Abu Bakr al-Kasani ( d.1191)
“If the property on which zakat fell due is dayn, as distinguished from ‘ayn, its zakat may be settled in terms of ‘ayn wealth. Thus a person having a claim of two hundred dirhams on which zakat is due, may give, in settlement of the same, five dirhams in cash, because dayn as compared with ‘ayn is defective (naqis) and the ‘ayn is complete (kamil), and a settlement of the defective in terms of the complete is valid. On the contrary, the settlement of the complete ‘ayn in terms of the defective (dayn) is not valid, and therefore, the zakat debt is not discharged if a person wants to pay the zakat of two hundred dirhams which he possesses (i.e. ‘ayn) in terms of the five dirhams which a poor person owes him (i.e. dayn); namely, by absolving him from the debt intending it for his own zakat debt on the two hundred dirhams.”
“Bada’i` al-Sana’i”

C] Shaykh Jalaluddin al-Mahalli & Shaykh Jalaluddin al-Suyuti
Allah says in the Qur’an (4, 29):
{ يَٰأَيُّهَا ٱلَّذِينَ آمَنُواْ لاَ تَأْكُلُوۤاْ أَمْوَٰلَكُمْ بَيْنَكُمْ بِٱلْبَٰطِلِ إِلاَّ أَن تَكُونَ تِجَٰرَةً عَن تَرَاضٍ مِّنْكُمْ وَلاَ تَقْتُلُوۤاْ أَنْفُسَكُمْ إِنَّ ٱللَّهَ كَانَ بِكُمْ رَحِيماً }
Tafsir:
“O you who believe, consume not your goods between you wrongly, unlawfully according to the Law, through usury or usurpation, except it be trading (tijāratan, also read tijāratun), so that the goods be from trade effected, through mutual agreement, through mutual good-will: such [goods] you may consume. And kill not yourselves, by committing what leads towards destruction on account of some affiliation, be it in this world or the Hereafter. Surely God is ever Merciful to you, when He forbids you such things.”
“Tafsir al-Jalalayn”

 
D] Qadi Abu Bakr Ibn al Arabi (d. 1148)
Allah says in the Qur’an (3:75):
“And amongst the People of the Book there are those who, if you were to entrust them with a treasure (qintar), he would return it to you. And amongst them is he who, if you were to entrust him with a dinar would not return it to you, unless you kept standing over him. “
Tafsir:
“the benefit that can be taken from this is the prohibition of entrusting (amanah) the People of the Book with goods. The question concerning entrusting property is legislated by the text of Qur’an.”
“Ahkam al-Qur’an”

E] Imam Abu Abdallah Al-Qurtubi (d. 1273)
Allah says in the Qur’an (4:59):
“O you who believe! Obey Allah and obey the Messenger and those in command among you..”
Tafsir:
“The ayat is an order to obey the Sultan in respect to seven obligations: the minting of the dinar and the dirham, fixing weights and measure, legal judgments, Hajj, Jumu’ah, the two Eids and Jihad.”
“Al-Jami’ li-Ahkam al-Qur’an”

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