Islamic Money

During the period of prophet (may peace be on him) not only Dinar and Dirham but also some homogenous commodities e.g., wheat and barley and dates were used as money. These derived their purchasing power from their intrinsic value. This continued during the period of Khulfae Rashidun (may Allah be pleased to them). Dinar and Dirham are most stable single commodity based measures of value and these were used as common medium of exchange and Shariah used these in description of its universal provisions. Thus these were used as measure of value and unit of account, and store of value and there is no disagreement on these issues. Sale on credit and Riba free loans Musharikah and Mudarabah were in practice, Riba was strictly prohibited and Zakah was imposed and these constituted the most important features of monetary and financial system of Islam. Therefore those who hold that Islam has no preferred monetary/financial system are clearly wrong.

Nothing other than common medium of exchange can perform measure of value function of money. However to perform as a measure it must be a highly reliable and stable measure of value/purchasing power. Shariah ordains utmost care to ensure just measurement and thus to be held to be Shariah compliant common medium of exchange must have most stable value. We may not emphasize other conditions as fulfillment of this condition normally ensures satisfactory performance of other functions. This ensures economic justice and efficient Market as well as allocative efficiency. Further other forms of money should be allowed restricted use to fulfill such other monetary needs of the economy that need to be met to ensure that monetary constraints do not hamper economic growth. Price as well as purchasing power of everything varies with respect to anything else due to relative changes in supply and demand. Purchasing power is normally measured with respect to a representative basket of national product. As regards freely floating fiat money a defined representative basket of national product is the right measure of its value and thus constancy of purchasing power of freely floating fiat money as normally determined implies that it will discharge the measure of value function of money efficiently. It follows that economic justice and growth in a non-exploitative (Reba free) economic system requires that monetary and fiscal policy be geared to ensure nil rate of inflation.

Reference

Hifzur Rab (2009). Freedom, Justice and Peace Possible Only with Correct Wealth Measurement with a Unit of Wealth as Currency. Paper presented at International Conference on Unity of Sciences held on Jan14-15 at BCG trust University Chittagong. Published HIJSE 26:1, 2010.

Hifzur Rab (2010). Interest, Monetary Manipulation and Misunderstanding are Stifling Emergence of Just and Efficient Islamic Alternatives. Paper presented at Seventh International Conference on Unity of the Sciences held on Jan 10 at UKM, Malaysia. Published HIJSE 27:3, 2011.

Hifzur Rab (2014). Poverty Systemic causes and eradication. Paper presented in 2nd International Conference of CIIS: Poverty Alleviation and The Social Contract, Universitas Sultan Hasanuddin, Makassar, Indonesia November 26 and 27, 2014. Published in 2016 in Choudhury M.A. & Uzir A. M. (Ed.), The Social Economy: Poverty Alleviation and Social Wellbeing Series, Journal of Ethics, Economics and Finance Volume 1, Nos. 1&2, 2016, Special Issue P81-108, Cambridge Scholars Publishing.