The pre‐eminence of gold and silver as Shariah money

• Published date: 01 September 2019
• DOI: http://doi.org/10.1002/tie.22040
• Date: 01 September 2019
• Author: Hassan Belkacem Ghassan,Noureddine Krichene

RESEARCH ARTICLE

The pre-eminence of gold and silver as Shariah money

Noureddine Krichene

1

| Hassan Belkacem Ghassan

2

1

Macroeconomic Policies, Modeling,

International Monetary Fund, Washington,

District of Columbia

2

College of Islamic Economics and Finance

Department of Economics, University of Umm

Al-Qura, Makkah, Saudi Arabia

Correspondence

Hassan Belkacem Ghassan, College of Islamic

Economics and Finance Department of

Economics, University of Umm Al-Qura,

Makkah, P.O. Box 14266 Al-Awali, Makkah

21955, Saudi Arabia.

Email: hbghassan@uqu.edu.sa

JEL codes: E42, E5, F33

Shariah money is gold and silver, supplied by the market on profit criterion. Everywhere, govern-

ment inconvertible paper money arose from bankruptcy. A government with balanced budgets

would never need it. Imposed by force, inconvertible paper is a taxation mean, highly inflation-

ary, and causes impoverishment. Unjust and bankrupt governments will continue to force this

despotic money. Islamic Monetary Economics refutes the idea of money as a policy tool. Fully

convertible paper is Shariah compliant. Shariah requires a just government to balance its bud-

gets and restore fully gold and silver as lawful money.

KEYWORDS

bankruptcy, gold-silver, inconvertible paper, inflation, money, Shariah

1|INTRODUCTION

Money is defined as the cash in circulation; it is perfectly liquid, unani-

mously accepted in all transactions. Previously, it included gold and silver

coins. Presently, it is government currency. Money substitutes may be less

liquid. They include credit, and bills of exchanges, and commercial effects

that are allowed by law to circulate through endorsement. Money was

invented to circumvent barter trade and promote commerce and the spe-

cialization and division of labor within and across countries. Without money,

any economy, regardless how advanced it be, will collapse because of star-

vation and social disorder.

1

Throughout the centuries, governments have

often debased money, a practice that dated back to the Roman Empire. By

outlawing gold and forcing inconvertible paper money, governments have

oftenresortedtoexcessivemoneyprinting,causinghighpriceinflation.

Oresme (n.d.) and Copernicus (1864) opposed money debasement as it

inflicted damage to trade and property. Shariah has set out divine rulings to

preserve a sound money. It bans strictly interest transactions. Consequently,

it bans interest-based debt money that displaced gold and silver (Carroll

1965; Gouge, 1833). Shariah recognizes money as a commodity, an equiva-

lent in labor and capital content to another commodity in exchange, which

enters the circulation, as any other commodity, via production and

exchange. Its price in relation to other commodities obeys strictly the laws

of supply and demand. Likewise, the U.S. Constitution was explicit that gold

and silver were money.

2

Shariah bans inconvertible paper money; it recognizes no privilege for

the government to emit noncommodity money such as fiat money; nor

does it recognize the right acquired by any bank through legislation to emit

debt money.

3

For many centuries, only gold and silver were used as money

in the Islamic countries (Ibn Khaldun, 1377, see later Section 7). Also, Ron

(2011, p. 6) stated on the bezant that is, byzantine gold coin that “For ten

centuries the byzantine coins were accepted all over the world, …The Byz-

antine empire declined when it debased the bezant.”After several centu-

ries, paper money made its debut in the mid-19th century with the

Ottoman empire. Pamuk (2000) indicates that from the 19th century, the

Ottoman government first adopted bimetallism and moved toward the

monetary gold standard system, among other governments around the

world. The Islamic Ottoman empire issued in 1863 paper money convert-

ible to gold, the monetary authority named the Imperial Ottoman Bank

was granted issuing gold-backed banknotes and then guaranteed their

convertibility (Pamuk 2000; Tuncer, 2012).

4

1

Starvation became widespread during the German hyperinflation (Bresciani-

Turroni, 1931). Starvation occurred also in France during the assignat

hyperinflation.

2

Article 1, Section 8 of the Constitution: (a) the Congress shall have the power:

to borrow money on the credit of the United States; (b) to coin money, regulate

the value thereof, and of foreign coin, and fix the standards of weights and mea-

sures; (c) to provide for the punishment of counterfeiting of securities and cur-

rent coin of the United States.

3

Inconvertible paper is not money as much as a horse in paper is not a horse and a

house in paper is not a house. Government power cannot alter the nature of money

as a traded commodity in as much as it cannot turn a horse in image into a true horse.

4

Under the inconvertible paper money system, the issuing authority does not

authorize to convert the fiat money, that is, currency note ordered by the gov-

ernment, into gold or other precious metals coins. In an Islamic perspective,

even if the paper (fiat) money is convertible, it should be implemented in a Riba-

free based financial system. But nowadays and since the colonization period,

the Muslim people went out of the pathway of their Islamic monetary system.

DOI: 10.1002/tie.22040

Thunderbird Int. Bus. Rev. 2019;61:821–835. wileyonlinelibrary.com/journal/tie © 2019 Wiley Periodicals, Inc. 821