Money from Shari’ah
Perspective
DR. ZULKIFLI HASAN
Contents
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Introduction
Discourse on Money by Muslims Jurists
Issues on Modern Money
Characteristic of Money from Economic Perspective
Money from Shari’ah Perspective
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Gold and Silver as the only Money
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Money is extended to fiat and fulus.
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Characteristics of Shari’ah Money
The Unresolved Issues: Fiat Money
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Characteristics of Shari’ah Money
Money in the theories of fiqh
Fatwa on fiat money
Modern Money: Revisit
Concluding Remarks
Introduction
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The classical legal scholars do not develop a
concise theory of money
It is historically established that the most valuable
and accepted metallic monies were gold, silver,
and then copper.
At the time of the Prophet, the Muslims used
Byzantine gold (dinar), Persian silver sigloi (dirham),
Himyarite coins from Yemen or raw metals and
other commodities as money.
Three sorts of metal were used for economic
transactions: gold (dinar), silver (dirham) and copper
(fals plural fulus).
Discourse on Money by Muslim Jurists
Phase 1
Phase 2:
Scholars were
exposed to gold
and silver as the
main forms of
money.
Other forms of
money did not pose
an issue or create
economic problems.
Scholars were
increasingly
faced with
problems
associated with
the
extensive use of
copper based
money
Phase 3:
Scholars were faced
with problems
associated with
the use of fiat money
• Fiat money involves fraud,
exploitation and injustice,
§  Clear demarcations on
which
at the same time
accountability & responsibility
creates
uncertainty
§  Outlines
the level of and
accountability
and responsibility
of the board of
involves
gharar (Marks).
• The U.S-led fiat money
system has become a
Aims at safeguarding the
independence
the Shariah
weapon ofofeconomic
committee in ensuring sound
imperialism (Shaefer)
Shariah decision-making, and
directors, Shariah committee and
management of the Islamic
financial institutions
Fiat Money
Trust in gold as a currency is
Highlights requirements and
easier
than trust
in the to
expected
competencies
ensure key
arewho
politicians
andfunctions
bankers
capable of implementing
are meant
to control the fiat
Shariah governance
money supply (Ricardo).
emphasis on the role of the board
of directors in recognizing the
independence of the Shariah
committee
By going off the gold standard,
the US has obliged the world’s
central banks to finance the
U.S. balance-of-payments
deficit
byset
using
their
surplus
Minimum
of rules
that
dollars
to buy
U.S.importance
Treasury
emphasizes
on the
of observing
and preserving
bonds
and maintain
large
confidentiality and improving
amounts
of dollar reserves,
the level of consistency in
whose
total
amount
decision
making
by therapidly
Shariah
committee
goes
beyond “America’s
ability or intention to
pay” (Dyer).
What is money?
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Anything which is specifically used as a medium of
exchange, is measurable, and can store value. Ibn Taimiyyah: "Money and coins are not meant for
themselves but they are meant to be used for
acquiring goods (that is, they are a medium of
exchange)”
Al Ghazali: “To use money for the purpose not
intended for its creation is vicious”.
Muhammad Manzoor Ali: “Money is dissimilar to
production goods, as it differs in characteristics.
That means money is useful only due to its quality
of being a medium of exchange”
If money needs to be exchanged with money, the
Islamic injunction on trading ribawi material is
applied.
Characteristics of Money from Economic Perspective
Acceptability
Divisibility
Portability/
Convenience
People must be willing to accept it as a means of
payment and in settlement of a debt
Must be capable of division into smaller units to
accommodate transactions of differing value
Must be portable and easy to use
Money of the same value must be of uniform quality
Uniformity
Stability of value
In order to fulfil its various functions, it must retain
its value
It must be hard to forge
Security
Durability
Must last a reasonable length of time before
deteriorating
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Forms of Money
Natural Money:
In the form of a commodity
with intrinsic value
(gold and silver)
Artificial or Fiat Money:
Without intrinsic value that
is used as money because
of government decree
Muslim Jurists
Position on Money
Gold and Silver as
the only money
Accept fulus and fiat
money as money
First View: Gold and Silver as the Only Money
Shafii Scholars
Al- Ghazali, al-Nawawi, al Suyuti and al-Maqrizi
Hanbali Scholars
Mujahid and Nakha‘i.
Hanafi Scholars
Abu Hanifah and Abu Yusuf
Maliki Scholars
Ibn Nafi‘, al-Adawi and Shaykh ‘Alish, Mufti of the
Maliki madhhab (school) in Egypt.
Contemporary
Scholars
Shaykh Ahmad al-Khatib, Shaykh ‘Abd al-Rahman al
Sa‘di, Ibn Badran, Ahmad al-Husayni, Shaykh alMuti‘I, Shaykh Muhammad Amin al-Shanqiti, Taqi alDin al-Nabhani, Muhammad Baqir al- Sadr, Muhammad
Makhluf, Hassan Ayyub, Nasir Farid Wasil and Imran
Hussein.
Reason D’etre
Sunnah Taqririyah
Muamalah and
Ibadah Maliyah
Dinar and Dirham in
al Quran and hadith
Justice
Hoarding of gold and
silver (iktinaz) is also
prohibited
Stability of value
The Prophet approved the use of gold and silver in
Makkah and Madinah
Calculation of zakah on money, diyah or blood
money, theft punishment and exchange
transactions is based on Gold and Silver
Indicate that gold and silver are to be used as
money.
Justice in the monetary system.
Riba-free and gharar-free.
The reason is to keep gold and silver in circulation,
hence, gold and silver perform the function of
money
The introduction of ‘fulus’ created new kinds of
instability and inflation where the causes were
mainly monetary phenomenon
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Characteristics of Money from Fiqhi Perspective
1. Precious metals (gold or silver);
n  2. Intrinsic value: the value of the money was
‘inside’ the money and not ‘outside’.
n  3. Money was always located within Allah’s
creation in a commodity that was created by
Allah, with value assigned to it by Allah.
n  4. Functions as a medium of exchange, a store/
measure of value and a unit of account
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Functions as Money
As a medium of exchange, or means
of payment: Money is generally
accepted by buyers and sellers
as payment for goods and
services
Surah al-Tawbah: 34 prohibits the
hoarding of gold and silver indicating
the function as money.
al-Kahf: 20, silver is used as a medium
of exchange.
As a store/measure of value:
Money serves as an asset that
can be used to transport
purchasing power from one
time period to another.
Surah al-Imran: 75, 91 showing the
function of gold as a store/measure of
value.
Al Ghazali: God created the two
precious metals, gold & silver to serve
as a measure of all commodities
The numeraire: A unit of
Surah Yusuf: 20 indicating silver as a
account: money is a standard
measure of value and medium of
that provides a consistent way exchange.
of quoting prices.
Gold and Silver as Money in al Quran
Dinar
Surah al Imran, 3: 75 and 91,
al Zukhruf, 43: 71 and 53, al
Fatir, 35: 33, al Haj, 22: 23,
al Kahf, 18: 31, al Isra, 17: 93
These verses
demonstrate that
Allah created gold
and silver to be
used, among other
things, as money.
Dinar and Surah al Imran, 3: 14, al
Since the early days,
Dirham
Taubah, 9: 34, al Zukhruf, 43: Muslims regarded
33-35, al Nisa, 4:20, al Insan, gold and silver
76: 21
coins as their only
real and stable
Dirham
Surah Yusuf, 12: 20
wealth (Ibn
Khaldun)
Gold and Silver in Hadith
Abu Bakr ibn Abi
Maryam reported that
he heard the Messenger
of Allah say: "A time is
certainly coming over
mankind in which there
will be nothing (left)
that will be of use (or
benefit) save a Dinar
(i.e., a gold coin) and a
Dirham (i.e., a silver
coin).” (Musnad
Ahmad)
Abu Said al-Khudri reported: When the Day of Resurrection comes a
Mu'adhdhin (a proclaimer) would proclaim: “Let every people follow
what they used to worship.”Then their persons would be forbidden to
the Fire; and they would take out a large number of people who had
been overtaken by Fire up to the middle of the shank or up to the
knees. They would then say: “O our Lord not one of those about
whom Thou didst give us command remains in it (in Jahannam)”. He
will then say: “Go back and bring out (from the hell-fire) those in
whose hearts you find good of the weight of a Dinar.” Then they will
take out a large number of people. Then they would say: “O our Lord!
We have not left anyone about whom You commanded us.” He will
then say: “Go back and bring out those in whose hearts you find as
much as half a Dinar of good.” Then they will take out a large
number of people, and would say: “O our Lord! not one of those
about whom Thou commanded us we have left in it.” Then He would
say: “Go back and in whose heart you find good to the weight of a
particle bring him out.” They would bring out a large number of
people, and would then say: “O our Lord, now we have not left anyone
in it (Hell) having any good in him.” (Sahih, Muslim)
Both hadith indicate that gold and silver as the only money acceptable by Shari’ah. (Ibnu
Khaldun, Al Ghazali, al Maqrizi).
Robert Mundell: “Gold will again be part of the international monetary system in the 21st
century, providing a stable international unit of account that is missing since WW I”
Characteristics of Gold and Silver as Money
Homogeno Acceptabil Divisible
us
ity
Mobile
Stable
Rare
Gold
Excellent
Excellent
Excellent
Good
Excellent
Excellent
Silver
Excellent
Very Good Excellent
Good
Excellent
Good
Source: Meera and Larbani, (2009: 101)
Money is extended to Fulus and Fiat money
Hanbali Scholars
Ibn Taymiyyah and Ibn Qayyim
Hanafi Scholars
al-Shaybani
Maliki Scholars
al-Hattab and al-Wansharisi
Zahiri Scholars
Ibnu Hazmin
Contemporary
Scholars
Yusuf al-Qaradawi, Muhammad Taqi Usmani,
‘Abd Allah Sulayman al-Mani‘, Majma Fiqh and
the Islamic Fiqh Academy of the Muslim World
League
2nd View: Characteristics of Money
1. Money is not characterized by Precious metals
(gold or silver); or commodities, or intrinsic
value:.
2. Money is anything that has functions as a
medium of exchange, a store/measure of
value and a unit of account.
n Ahmad ibn Hanbal: There was no harm in
adopting as currency anything that is generally
accepted by the people.
Reason D’etre
Sunnah Taqririyah
Sunnah taqririyyah supports the view of gold and silver as
money, but it cannot be interpreted to limit money to
only gold and silver
Principle of Ibahah
There is no prohibition for the use of other than
gold and silver as money
The authority is given to scholars to determine the type of
money based on the sources of Shari‘ah
Al Masalih al Mursalah
To remove
hardship
Convention or
Custom
Usage of fulus or
copper money/
Maghshus (mixed
metal)
Hardship if money is restricted to only gold and silver due
to limited supply to fulfill contemporary economic and
financial needs
The meaning of money is to be seen in its function as a
medium of exchange and measure of value. It does not
have to be limited to gold and silve
Both have an intrinsic value below the face value.
Fulus is the first example of conventional money.
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The Unresolved Issues
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Modern money:
n  the fiat money and
n  the bank credit money
What is the basis for using fiat money, which has an
exchange value that exceeds the intrinsic value?
Current monetary regime dominates financial
transactions with elements of riba and gharar.
Currency speculators earned money by manipulating
weaknesses in the international monetary regime.
Bank Credit Money: The creation of bank deposits, loaning
out the same money through numerous means such the
various types of loans, credit cards, and the market created
electronic money (Khan, 1999).
The main issue regarding bank credit money is the regulation
regarding fractional reserve requirement and the credit that
the bank created.
Fiat Money
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in Latin means 'let there be'
Fiat money is money declared by a government to
be legal tender. Fiat money serves as the medium of exchange by
government declaration.
Fiat money is a type of money that is not backed by
any physical good or commodity.
The value of fiat money or its purchasing power lies
on public acceptance, government decree and
relative scarcity.
Currency notes and coins (state-issued money) and
accounting money (bank credit money)
Discourse on Fiat Money by Muslim Jurists
Phase 3:
Phase 1:
Usage of fulus and
maghsush as an
alternative money
Phase 2:
Currency is based
on the gold standard
Fiat money can be
viewed
as a bond on the
deposit
of gold or silver.
Example: Fatwa from
the Azhar mosque in
Cairo .
No currency is based on
the gold standard.
(i) Fiat money is treated
as a fungible good (dayn).
(ii) Suftaja: Fiat money is
regarded as a replacement for
the athman of silver and gold
(iii) Fiat money has the same
position as fulus
(iv) Money as a simple good
(v) Money as thaman
Fiat Money in the Theories of fiqh
As al Dayn
• The rules
for
exchange
of debts
apply.
• Money
cannot be
exchanged
for money
(dayn bi aldayn) and
no salam
• the
exchange
of money
for gold or
silver is not
permitted
As Suftaja
• Regarded
as a
replacement
for the athman
silver and
gold as
precious
metal.
•  Can only
be justified if
it is
completely
backed by a
precious
metal.
As Fulus
• Same legal
position as
fulus.
• Social
control
cannot
guarantee the
exchange
value of
paper money
as it did for
copper coins.
•  an
exchange in
unequal
numbers is
not
prohibited.
As Thaman
• Different
currencies as
well as gold,
silver and fals
are regarded
as different
types.
• Strong
danger of
gharar. Money
is not backed
by real assets,
only the
strength of
the economy
serves as a
guarantor.
As a Simple
Good
• Fiat money
is seen as
goods.
• using paper
money for
payment is
not a sale of
paper
• The face
value is not
based on the
market for
paper.
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Fatwa on Fiat Money
n  3rd
conference of Islamic Fiqh Academy
which held in Amman Jordan on 16 October
1986:
n  "Fiat money is a currency that stands with its
own value. Its rule is similar with the rule of
gold and silver. Thus, it is treated as one of
zakatable as well as ribawi (usurious) items".
Fatwa on Fiat Money
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Resolution of the Islamic Fiqh Academy of the
Muslim World League in Makkah in 1985,
Resolution No. 6, Regarding Paper Currency.
Paper currency has become the medium of
exchange for today’s goods; it has replaced gold
and silver in today’s financial transactions, and as
it is the standard by which goods are valued.
Fiat money is used to store value in savings, even
though it lacks intrinsic value. The people’s
confidence in it and their regard for it as the
medium of exchange has bestowed the quality of
being a counter-value for any exchange upon it.
Paper currency is an independent form of money,
and the rules for gold and silver money apply to it;
therefore, it is compulsory to pay zakah on it.
Reason D’etre
Qiyas
Scholars of usul fiqh make analogy between fiat money with
gold and silver which had been used as currencies during.
Illah: Holding monetary value
Istihsan
As fiat money become the only acceptable payment around
the world its use is inevitable either in domestic market
or at international trade level
Non-contradict with the textual revelation neither from the
Quran nor the Sunnah and the subject matter must be a
Social Convention/ Urf
general custom (al 'urf al `am).
Al Masalih al
Mursalah
Interest, welfare, advantage and wellbeing
Blocking the means which leads to unlawful matter
Sadd al Zarai’
Fiat Money: Revisit
Issue on Intrinsic Value
n  Issue on Allah’s authority to create Money
n  Issue on Medium of Exchange
n  Issue on Store of Value
n  Issue on Stability of Value
n  Issue on Seigniorage
n  Issue on Ownership
n  Issue on Free Will
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Issue on Intrinsic Value
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Fiat money has no intrinsic value.
Fiat money do not carry any intrinsic value, but by and
large they are money that has “nominal” value owing to
the fact that a sovereign state has declared it legal
tender supplanting money that is universally regarded as
having intrinsic value independent of any state decree
(Khan, 1999).
The principle of “nominalism”: Being a legal tender at
the time of payment money involves an obligation to
pay for material goods regardless of its intrinsic value.
Fiat money is created by the government at no cost,
apart from that of materials.
Issue on the Authority to Create Money
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The money creating functions of the private banks are
subjected to government regulation. Fiat money has resulted
in the delegation of wide power of money making to the
banking system the power that the legislature itself does not
have (Parks, 1998).
Money creation would cause a gradual shift of power into
the hands of those who control the financial system.
Bank’s ability to produce credit money is not regulated but
rests on its economic prudent, policy choice and reserve
requirements and this is worsened by the banking
industry’s deregulation (Selgin, 1994 and Dow, 1996).
Such a wide and arbitrary power is against the principles of
trust or accountability and adl (justice) under the Shari’ah (al
Quran, 38:26; 4:58; 8:25, 39; 10:85; 59:7).
Issue on Medium of exchange
Imam Malik: “any merchandise commonly
accepted as a medium of exchange.”
n  (i) Money has to be merchandise. It could be
paper. But fiat money is only for the value of
the paper itself, not for what is written on it.
Money must be something tangible (‘ayn).
n  (ii) Money must be commonly accepted.
Therefore it cannot be imposed.
n  The fraudulent nature of the offer: Oblige to
accept something above its value.
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Issue on Store of Value
Fiat money is no longer backed by gold, hence it
is not considered to be appropriate store of
value.
n  In contemporary financial systems, money is not
a good store of value since its value generally
depreciates over time, i.e. its purchasing power
erodes due to inflation.
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Issue on Stability of Value
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Is the fiat money system inherently unstable?
Ibrahim, (2006): Expansion in money supply exerts an
upward pressure on price levels and operates, with interest, as
a destabilizing influence on stock prices.
The speculative and arbitrage activities are due to the
existence of different currencies and the cross exchange rates
between them. These exchange rates constantly fluctuate,
either due to forces of demand and supply for the currencies
or even manipulative attacks.
Roy W. Jastram. The Golden Constant (1977) and Silver: The Restless
Metal, (1982): Figures for the price level based on the wholesale
price index in Britain from the 1500s to the present, and for
the U.S. from 1800. Data provides a very consistent series of
prices over four centuries when things are priced with gold.
Issue on Seigniorage in a Fiat Money
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Seigniorage: The percentage share of the crown in the bullion
people brought to the royal mint to get converted into coins. It
is the value given to fiat money over and above its intrinsic
value.
The benefit obtained by the first user of the fiat money:
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(i) The bankers in the case of credit money, and (ii) the government in
the case of currency notes and coins.
Seigniorage of the international fiat currencies is, in large part,
behind the current instability of the global monetary order
(Robert Mundell).
Contemporary Muslims Jurists including Majma Fiqh are silent
on the issue of seigniorage in developing the theories of money
from fiqh perspective.
Seigniorage is not compatible with the Maqasid Shari’ah.
Is the creation of fiat money is a serious form of riba?
Issue on Ownership
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Human effort (physical or intellectual) is prerequisite for
the creation of ownership.
Every transfer of asset, except a gift, inheritance or
likewise, must be compensated for.
Most money in the present monetary system is created by
privately owned commercial banks, by means of the
fractional reserve banking system (FRB).
FRB creates ownership out of nothing, without work and
taking on legitimate risks; thereby transferring ownership
wrongfully.
Surah al Baqarah, (2: 188) and al Nisa, (4: 29): Prohibition
of transferring wealth through batil (wrongful) means.
Issue on Free Will
Freedom to choose medium of exchange.
n  People were forced to accept things without
intrinsic value as measures of value the legal
tender law.
n  The established legal tender laws coerce
people to accept the modern monetary
system when disputes are adjudicated in the
courts.
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Concluding Remarks
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Classical and contemporary Muslim Jurists do not develop
a concise theory of money.
The foundations for money have changed considerably,
from precious metal to gold standard and finally fiat money
without a real counter value.
New aspects of using money, call for new directions in
Islamic legal thought and theories. The existing theories of
fiqh on fiat money seem to be insufficient and need further
research.
Is total abandonment of the use of gold and silver is
permissible?
Is the Maqasid Shari’ah are attainable in a fiat monetary
system?
Serious need to revisit the fatwa on both the fiat money and
the fractional reserve banking system.