Fiat Money and the Shariah?

[xs11ax]

the answer for this...

To go back to your original point, I don't see why a fiat currency issued by a government with a fixed value, even if backed by nothing, would not be acceptable in shariah. There could be reasons I don't know.

could be this...?

But yes, today's fiat currencies are all plagued by riba. This I believe is the fulfillment of the hadith in which the Prophet mentions that a time would come when no one would be able to escape being touched by riba.

the whole basis of the fiat currency is riba. without riba there would be no fiat currency. but not only that, but the whole system is tyrannical and oppressive. it is a zulm upon the people.

[hammadrizwan]

Asalam WR WB

From my understanding upon the matter.. fiat currency was never allowed by the Shariah. Just recently, near the decline of the caliphate, fatwas were passed by 'scholars' (under Western guidance ) which authorized its use and permissibility, although it had been deemed haram for all of Islamic history. There is a lot of good work on the finance money system by the Murabitun group. I've found from their readings, they grasp the reality of the situtation, whereas many others dont.

One must know the diff types of money: commodity, representative and fiat. Commodity is gold, silver, seashells, dates, etc. Representative was utilized by the Muslm Caliphate at various times and basically represents the commodity itself (this is a fixed definitive relationship 1:1, etc.). The fiat was initially introduced as a rep, then pseudo-representative (eventually the rate of conversion was arbitrarily established) and eventually it was weaned off this system in 1971.

The position of scholars today is we have no option but to use fiat so as a maslaha and allowance for the people it is continued to operate and spread its harm.

Unfortunately, mnany (including scholars) don't understand the complexities of the modern banking/finance system as this is not found in the traditional sources/curriculums of most madrasas/islamic schools. They come out viewing the world thru the lens of theory and applying principles and theorems to axioms wher tehy are not relevant and creates a further mess, as is the case with the whole modern banking system, whether it be Islamic or conventional. The foundation of both is money created out of thin air as debt that doesn't exist. Whether you put a beard and a jilbab on it or leave it as is, is irrelevant as the damage is already done. The whole downfall of the Muslim world and supremacy of the West is based on the ability of one group to have an unlimited supply of money and acquire resources (physical, intellectual, etc) for free, whereas every other entity or group (outside of their select system) has to trade hard physical assets to acquire those same goods/systems.

Allah knows best and may He guide us all to what is pleasing to Him.

[xs11ax]

maybe moulana abu hajira and moulana taliban could give us their understanding of this. colonel hardstone too but he doesnt seem to be dropping by much these days.

[abuhajira]

I think we have discussed this issue before when I was talking with our old br. celt. islam, laughinglion etc.. about the fiat money and the shar'i concept of thaman urfi.

essentially can one of your post in bullet form why should the current currency not be counted as viable shar'i means of transaction. That will save me some time.

[xs11ax]

I think we have discussed this issue before when I was talking with our old br. celt. islam, laughinglion etc.. about the fiat money and the shar'i concept of thaman urfi.

essentially can one of your post in bullet form why should the current currency not be counted as viable shar'i means of transaction. That will save me some time.

i am not too sure myself and made this thread so i can explore details with the other members. i dont even understand fiat currency in detail, i just have a loose idea of it. ( i dont think we are meant to be able to understand it in detail!)

from what i know the whole system is based on riba. without riba the system of fiat currency cannot survive. the 'money' is created by giving out loans (which do not actually exist and are just an idea or a promise) and then interest is paid on these (non-existant) loans.....and this somehow created money (lolwut!)???

[janaveronikazahra]

i am not too sure myself and made this thread so i can explore details with the other members. i dont even understand fiat currency in detail, i just have a loose idea of it. ( i dont think we are meant to be able to understand it in detail!)

from what i know the whole system is based on riba. without riba the system of fiat currency cannot survive. the 'money' is created by giving out loans (which do not actually exist and are just an idea or a promise) and then interest is paid on these (non-existant) loans.....and this somehow created money (lolwut!)???

salam alikum,
now I got what is said about fiat money cann ot survive without interests. But what is difference between interest based on REAL economic growth (means interests based on growth of businesses which in macroeconomic view represents growth of society) and interest above it - the riba or ususry? I think system which is in west now is usury for several reason, not only as the intrests are result of speculations from which only little people have benefit and they use money of other people but also for reason that no one is discouraged to take loan. Only one who is protected in western society is Creditor.

[xs11ax]

fatwas were passed by 'scholars' (under Western guidance ) which authorized its use and permissibility, although it had been deemed haram for all of Islamic history.

do you have the fatwas or any references to the fatwas for the parts highlighted in red?

[abuhajira]

do you have the fatwas or any references to the fatwas for the parts highlighted in red?

the older ulama could not have issued fatwa on the current fiat money since before 1938 all notes were backed by gold and were not currency in themselves rather receipt of debts. Then up untill 70's the money was partially backed by gold reserves.

These are nicely mentioned in Mufti Taqi's risalah about "Note ki Shar'ee Haythiyat"

[xs11ax]

the older ulama could not have issued fatwa on the current fiat money since before 1938 all notes were backed by gold and were not currency in themselves rather receipt of debts. Then up untill 70's the money was partially backed by gold reserves.

These are nicely mentioned in Mufti Taqi's risalah about "Note ki Shar'ee Haythiyat"

how about the current system where money is not backed by anything and created out of interest? what is the islamic stance on that?

[NNoor]

I think we have discussed this issue before when I was talking with our old br. celt. islam, laughinglion etc.. about the fiat money and the shar'i concept of thaman urfi.

essentially can one of your post in bullet form why should the current currency not be counted as viable shar'i means of transaction. That will save me some time.

Assume no interest is involved (that is, the currency is just issued by the government and given a fixed value in relation to a commodity such as gold), but that it does not represent any real assets owned by the government. Also assume that everyone agrees to use this fiat currency as a medium of exchange.

Some possible objections are:

1. Whoever issues the currency could potentially issue the currency in an amount exceeding the total amount of gold in existence. Because the issuer doesn't bother to back up the currency with actual gold, there is no way of knowing if and when that happens. If it does happen, it's the equivalent of fraud, whether intentional or unintentional.

2. The assignment of a value in grams of gold to the currency is completely arbitrary.

3. Too much power in the hands of the issuer of currency. The value of a medium of exchange should be dictated by the market only. For example, according to simple supply and demand, if the abundance of commodity x increases in relation to commodity y, if you were to trade with someone, you would need to give them more x's for the same amount of y's. On the other hand, if someone can simply create money (let's say commodity y is our fiat currency), then the value of x in terms of y becomes artificially increased. Whoever controls the currency can wreak havoc on the markets. For those who own the means of production, that doesn't really matter. However, for a worker receiving a fixed wage, it means that his wages have decreased while prices have increased. It's oppression.

I can't think of anything else. Basically, the real issue is in the creation of imaginary assets. Isn't that wrong? Even if we assume that the little scraps of paper are what hold value, it becomes un-useable as currency because paper is abundant, so it has no intrinsic value. And the cost of printing money is negligible. Those who have the equipment can create wealth from nothing and cheat others. Even if no interest is involved, it's still fraud.