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 2nd Caliph of the Muslims after the death of the Prophet Muhammad (pbuh), 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 amithqal 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.

An essential element of true Islamic finance is Zakat, the compulsory annual charitable payment of 2.5%.  Zakat must be paid in Gold and Silver.

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 Andrew Bailey, ‘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 Andrew Bailey 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'ah compliant means of exchange? Is it a worthy means of exchange for honourable Free Human Beings?  No, it is most definitely not.

The Return of the Gold Dinar

The Return of the Shari'ah currency, the Gold Dinar and Silver Dirham, poses a new understanding of wealth and prosperity that differs from conventional Economics. This new understanding is a new paradigm which we call Mu'amalat (social transactions and relationships) a significant part of which is Islamic trading. Islamic trading represents the wider frame in which the Islamic Gold Dinar standard can operate as intended by Islamic Law. Only through Islamic trading can we realise the full potential of the return of the Shari'ah currency. The full implementation of Islamic trading in effect proposes a complete 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 world order. To avoid misunderstanding we must clarify that what the World Trade Organisation (WTO) calls Trade, is not Trade in the sense of the natural order of things, but from even 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.