Wednesday, 10 July 2013

Where Are We Today - In This War On Riba?

If you are among those Allah has given guidance, it must be clear to you that the situation we live in today is very much wanting in terms of an ideal Islamic environment. As my focus is on riba, let us list what is wrong in the world at present, what current efforts are being done to address it, and, what (more) needs to be done next – before we get on to the planning process of enabling an environment where we can avoid riba.

(As even the topic of riba can potentially be lengthy, I will address the primary concern in this post, and future posts may deal with other riba-related issues.)


Fiat Money (a.k.a. paper money)

This is, of course, the biggest evil of riba today – as it affects almost everyone on earth. I will spare you the details of WHY fiat money is wrong; that is common knowledge you can derive from various sources ranging from economists to religious scholars (click here for reference). Apart from the usurious process of fiat money creation (which is in itself a prohibitive entry-point where riba is concerned), in summary, for fiat money:

  1. It has fictional value imposed unjustly.
  2. It can be manipulated unfairly.
  3. It is controlled by those who have a history of unjust imposition and unfair manipulation.
A reminder to take heed:
And among the People of the Scripture is he who, if you entrust him with a great amount [of wealth], he will return it to you. And among them is he who, if you entrust him with a [single] silver coin, he will not return it to you unless you are constantly standing over him [demanding it]. That is because they say, "There is no blame upon us concerning the unlearned." And they speak untruth about Allah while they know [it].
Quran 3:75
In the context of today, with the control of money in the hands of a few, I would say the unfortunate reality is that all nations (Muslim-majority ones included) are subjected to the latter type of people as described above. This is because no matter what national currency one may have, it is inextricably linked to the controlling dominant reserve currency dictated to the world, the US dollar; and we all know of the consequences of such (e.g. the Nixon Shock).

Disastrous Effects of Fiat Money

  • Firstly, we are not in control.
  • Lastly, we are not in control.

Seriously: Firstly, we are not in control of the type money. It is enforced upon us. That makes the element of mutual consent, a pre-requisite of trade, lost in transaction (Quran 4:29). You don't like the 'value' printed on that piece of paper? Sorry, you've got to accept it!

And lastly: we are not in control of the amount of money. However, those who ARE in control of the amount of money (who conveniently happens to 'own' the money as it is created*), couldn't care less how much the amount of money they create as long as they need/can get more of it (and that is never enough, apparently). And guess what happens when there is more money created than there are things to be exchanged with? Easy answer: more money is needed for the things to be exchanged with – i.e. INFLATION! This situation is not confined to the result of arbitrary money creation, it is made worse by the concept of fractional reserve banking, which—believe it or not—was borne out of fraudulent practices of the past. But that's reserved (excuse the pun) for another story.

*This is a simplification. See also Money Supply and more for details.

In between the first  and the last, there are many more ill-effects of fiat money, but I've highlighted just these two to make the point.

Alternative to Fiat Money

Simply put, we need to have freedom of choice in choosing our money to live with an option to avoid riba and prevent the above disasters. We need a medium of exchange that is the opposite of fiat money:

  • Money that is not created in a usurious manner.
  • Money that has intrinsic value: e.g. gold, grains, etc. How intrinsic? If it is 10 grams of gold, it is 10 grams of gold. No one can tell you otherwise (e.g. it obviously cannot be 12 grams of gold).
  • Money that cannot be manipulated: e.g. gold, grains, etc. Why can't it be manipulated?
    • You can't create new money (without effort) – if you have 10 grams of gold, you can't make it into 12 grams of gold by doing nothing.
    • You have to have honest exchange – if you want to exchange 10 grams of gold with 100 grams of silver, you cannot just give 8 grams of gold (passing off as 10 grams of gold) and expect to receive 100 grams of silver in return.
  • Money that you control: e.g. gold, grains, etc. – if you have 10 grams of gold in your hands, no one can change it to 8 grams of gold or 12 grams of gold, it stays as 10 grams of gold for as long as it is in your control.

For the sake of brevity, we will dwindle down all available alternatives to the two most common form of predominant money in recent memory – gold & silver. A little self-research will reveal why these two are widely used over other forms of money (pre-fiat money era), given all their advantages in being used as currency.

For the purpose of our discussion, let's call this opposite of/alternative to fiat money as "real money".


The (Re-)Introduction of Real Money

In the late 80s, a movement emerged to introduce real gold/silver money in the form of Gold Dinar and silver dirham (Dinar dirham) back to the people (click here for reference). It is, of course, a re-introduction, as anyone with enough historical knowledge knows that the use of Dinar dirham dates way back, even being present during the time of the prophet Muhammad SAW and continued till its last significant recognition as currency units in the Ottoman Empire before its dissolution circa 1920s. Essentially, to date, modern efforts in introducing Dinar dirham (DnD) pioneered by that movement and adopted directly or indirectly has seen the use of DnD grow organically around the world with mainly grassroots adoption and limited minor authority (state-based/Sultanates) recognition. These efforts are continuing and may Allah bless all the people involved.

Meanwhile, in other news, some other minor authorities (most notably some states in the United States of America) have been/are in the process of recognizing some forms of gold and/or silver as currency. Application of such recognition is apparently limited to governmental transactions within those states as the dollar still reigns supreme in transactions among the people overall in the country itself.

As at time of publishing, no nation or country in the world is using real money as its official currency. The use of gold, in particular, as an official national currency is restricted by the IMF.

All well and good, but why isn't real money trumping fiat money yet? Let's examine below (points in no particular order):

The Pros

  • People can get hold of real money in their hands now. Available in convenient forms of currency (albeit non-official currency) denominations such as 1 Dinar, 2 Dinars, 5 dirhams, 10 dirhams, etc., these real money can be used in trade transactions according to their divisible values.
  • It can be used as savings to protect against inflation.
  • Certain religious obligations such as Zakat that needs to be fulfilled using real money can be met.
  • A few independent, international organizations are attempting to establish standards for real money. For DnD, one such leading organization is the World Islamic Mint (WIM). 

The Cons

  • Current high valuations of available real money such as Dinar dirham (DnD) limits its use to transactions above certain thresholds. For example, there are not many frequent transactions you can make using the Dinar (if 1 Dinar is valued about RM 600), and even the dirham poses a challenge for everyday use (if 1 dirham is valued at RM 25). In traditional times, the use of smaller change is relegated to fulus; which in today's scenario, would require the user to revert to fiat money – hence impairing the purpose of using DnD, as convenience would override original intentions and the user would be inclined to revert to the use of fiat money even for larger sums.
  • Due to current value fluctuations of commodities in exchanges—of which both gold & silver are subjected to—that are mainly transacted in fiat money, short-term savings in real money may actually result in losses when re-conversion to fiat money happens (e.g. when real money obtained at higher fiat money rates are re-converted at lower fiat money rates in a subsequent exchange). In a world still dominated by fiat money, the requirement of re-conversion cannot be overlooked when such savings are to be used in times of necessity.
  • Non-Legal Tender=limited acceptance. This is the most crucial challenge facing real money advocates. Although end-user acknowledgement on the merits of real money can be achieved, usage in transactions is hampered by the reluctance of a vast majority of businesses due to the pervasive norm of only recognizing legal tender (official national currencies) as an acceptable medium of exchange. Even state-based real money legal tenders have inherent limitations when it comes to universal acceptance.
  • The international organizations providing standardization of real money is still very much at the infancy level. Apart from the lack of standardization & due recognition other than from minor authorities such as states within countries, another major hurdle facing such organizations is establishing official relations with other financial institutions so as to enable widespread recognition of standardized real money as a viable (official) currency – a systemic problem given the incompatibilities between the foundations of fiat money versus real money.
  • Insufficient & irregular availability. Given the economic & political challenges in producing real money, ensuring uninterrupted supplies is still a poser to the availability of real money. If you can't get it, then you would probably have no choice but to use fiat money.
  • Primitive functionality in preliminary implementation. The real money we have right now is basically just coins and a few places to store them as a fanciful feature. That typically falls flat in the face when convincing large numbers of the community to change, many of them immersed in modernity expecting creature comforts such as online convenience, instant convertibility, and more.


Short of waiting for the inevitable collapse of fiat money (which brings with it a host of issues that we'll save for another discussion!), for real money to be common place would require much work, which may include the following (in no particular order):

  • Achieving widespread acceptance, with or without legal tender status.
  • Availability in a large and liquid quantity.
  • Advancing standards organisations by aspiring operationally to official acclaim.
  • Addressing applications in usage appropriate to valuations.
  • Alleviating fluctuation concerns.
  • Accumulating critical mass in adoption by integrating advanced functionality.

Therefore, we need a plan of action. A macro perspective of implementation above & beyond the no-less-important admirable micro efforts already underway to win the hearts of the people to return to the ways of Islam and revive the glory of the Muslims. Above all, we need Allah. And we need to submit to Him.

Stay tuned...

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