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.
