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Article
Publication date: 1 April 2006

Ahamed Kameel, Mydin Meera and Moussa Larbani

Having argued in the part I paper that the interest‐based fiat monetary system is not compatible with the objectives of the Islamic law or the Shariah, this paper seeks to…

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Abstract

Purpose

Having argued in the part I paper that the interest‐based fiat monetary system is not compatible with the objectives of the Islamic law or the Shariah, this paper seeks to argue why commodity moneys, like the gold dinar and silver dirham, are compatible with the maqasid.

Design/methodology/approach

This is a theoretical paper that integrates information from the Qur’an, the traditions of the Prophet, the writings of early Islamic scholars and historical observations vis‐à‐vis the objectives or the maqasid al‐Shariah and makes logical deductions therefrom.

Findings

The theoretical conclusion is that while fiat money is counterproductive to the maqasid al‐Shariah, commodity moneys like the gold dinar and silver dirham, are indeed compatible with the maqasid. The Islamic economic system is, therefore, fundamentally a “barter” system, i.e. an exchange economy where goods and services are exchanged value for value, but avoids the problems associated with barter by taking some of the commodities exchanged in the economy, that have the characteristics of money, as money. Gold is argued to be the best Shari’ah money.

Research limitations/implications

Empirical investigations may shed further light.

Practical implications

If the theoretical deductions and contentions of the paper are correct, then their practical implications cannot simply be understated. For the Islamic economic system to emerge in reality, or for that matter any process of Islamization of knowledge/disciplines to succeed, it is foremost crucial that commodity moneys gradually replace fiat money.

Originality/value

The paper establishes that commodity moneys like gold and silver are Shariah‐compatible moneys, whereas the current fiat money is not.

Details

Humanomics, vol. 22 no. 2
Type: Research Article
ISSN: 0828-8666

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Article
Publication date: 3 April 2020

Anwar Hasan Abdullah Othman, Syed Musa Alhabshi, Salina Kassim, Adam Abdullah and Razali Haron

This study uses the autoregressive distributed lag model (ARDL) econometric approach to investigate empirically the effects of cryptocurrencies, the gold standard and…

Abstract

Purpose

This study uses the autoregressive distributed lag model (ARDL) econometric approach to investigate empirically the effects of cryptocurrencies, the gold standard and traditional fiat money on global income inequality measured based on the Gini coefficient, and various ratios of income inequality distribution such as top 1 per cent, top 10 per cent, top 40 per cent and top 50 per cent.

Design/methodology/approach

The study uses the ARDL econometric approach.

Findings

The findings indicated that cryptocurrency and gold standard monetary systems contributed significantly to reducing global inequality of income and wealth distribution. Conversely, the traditional fiat money system contributes positively to global income and wealth inequality while also contributing significantly to their fluctuation.

Practical implications

This suggests that the fiat monetary system results in the coercive redistribution of income and wealth if governments pursue a social welfare policy. They must resolve this conflict between the current fiat monetary system and social policy by opting for an alternative monetary system such as cryptocurrency or gold standard. These alternative monetary systems offer the promise of resolving the income and wealth inequality associated with the traditional monetary system which are accompanied with the channels of inflation, lack of financial inclusion and debt creation, and to offer a more sustainable financial system.

Originality/value

The study recommends that monetary policy must be revisited to account for its direct effect on income and wealth redistribution to achieve social welfare goals.

Details

International Journal of Emerging Markets, vol. 15 no. 6
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 3 November 2020

Muhammad Hanif

This study aims to evaluate the role of the prevailing currency systems in achieving (or departing from) the socio-economic objectives of a progressive and just society;…

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1024

Abstract

Purpose

This study aims to evaluate the role of the prevailing currency systems in achieving (or departing from) the socio-economic objectives of a progressive and just society; i.e. featuring stability and equitable distribution of wealth.

Design/methodology/approach

After documenting historical developments in currency systems, the study reviews the Islamic perspective on the matter. Features of an ideal currency system are listed and then a critical evaluation of existing currency systems – fiat, banking and cryptocurrency – is undertaken.

Findings

It is found that existing currency systems – fiat, banking and cryptocurrency – are not compatible with the socio-economic objectives of a forward-looking, progressive society, which upholds transparency and justice as its core values. The study documents that Sharīʿah norms have no preference or dislike for any of the existing currency systems. Any prudent currency system compatible with the objectives of the Islamic financial system (i.e. stability and equitable distribution of wealth) is acceptable. A single international reserve currency (with country-specific legal tendering) is subject to the risk of destabilisation across global markets.

Practical implications

This paper recommends autonomy of central banking, the spending of seigniorage for the welfare of community members, development of asset-backed currencies (following ṣukūk structures), as well as multiple international reserve currencies and joining of hands by professionals and Sharīʿah scholars to design a currency system compatible with the Islamic financial system. This paper’s recommendation is against the adoption of cryptocurrency that lacks the backing of real assets.

Originality/value

The study contributes to the literature by evaluating the compatibility of existing currency systems in the achievement of socio-economic objectives of a welfare state which seeks to uphold justice and equitable resource distribution as core values in the financial system.

Details

ISRA International Journal of Islamic Finance, vol. 12 no. 3
Type: Research Article
ISSN: 0128-1976

Keywords

Content available
Article
Publication date: 5 August 2019

Mirza Hedismarlina Yuneline

The innovation of cryptography technique and blockchain has made cryptocurrency an alternative medium of exchange due to its safety, transparency and cost effectiveness…

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10422

Abstract

Purpose

The innovation of cryptography technique and blockchain has made cryptocurrency an alternative medium of exchange due to its safety, transparency and cost effectiveness. But its main feature cannot be separated from the users who use cryptocurrency for their illegal transactions. There are several arguments related to the legality of cryptocurrency. The purpose of this paper is to analyze the nature of cryptocurrency based on characteristics of money, legal perspective, economic perspective and Sharia perspective.

Design/methodology/approach

In this study, the methodology used is descriptive with a qualitative approach. The object of this research is cryptocurrency. The data are secondary data obtained from peer-reviewed journal articles, conference papers review, working paper and Sharia consultant reports addressing the legality of cryptocurrency. The literature review analysis includes the following steps: material collection, descriptive analysis, discussion with people in Sharia competency and intuitive-subjective material evaluation.

Findings

Regarding the characteristic of money, cryptocurrency is acceptable. But in terms of the legal perspectives, cryptocurrency does not meet the criteria as currency. From the economic perspective, cryptocurrency does not fully meet the characteristic currency due to high price volatility, and from the Sharia perspective, cryptocurrency can be considered property (mal) but not as a monetary value (thamanniyah).

Research limitations/implications

The research findings are based on the journal articles, working paper and Sharia consultant report, and it may lack Sharia’s opinion. Any further discussion related to Sharia perspectives will be a great input to enrich the study.

Practical implications

This study also includes the implications related to the opportunities and the risks of cryptocurrency that can be discussed for the development of the cryptocurrency in the future.

Social implications

This study includes the implication cryptocurrency is using as nature of money and not as speculative instrument.

Originality/value

This study argued the legality of cryptocurrency in four perspectives such as the nature of money, legal, economy and Sharia perspective.

Details

Journal of Asian Business and Economic Studies, vol. 26 no. 2
Type: Research Article
ISSN: 2515-964X

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Abstract

Details

A Modern Perspective of Islamic Economics and Finance
Type: Book
ISBN: 978-1-78973-137-8

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Book part
Publication date: 21 October 2019

Mustapha Abubakar, M. Kabir Hassan and Muhammad Auwalu Haruna

Cryptocurrencies are hidden monies that are specifically created to be used as digital currencies while assuming the characteristics of real money. Barring the divergent…

Abstract

Cryptocurrencies are hidden monies that are specifically created to be used as digital currencies while assuming the characteristics of real money. Barring the divergent opinions on whether permitted in Islamic law (that is/are halal) or forbidden in Islamic law (that is/are haram), and for which the swing tends to be in favor of its blockchain underlying technology permissibility in Islam, cryptocurrencies are undoubtedly indicating potential for relevance in the global trade, investment, and other contract settlements in some years to come. The potential of the blockchain technology is phenomenal with recent estimates suggesting it will be worth more than $20 trillion in just two years, which is more than the entire American economy. Since fortunes are made by those entrepreneurs and indeed savvy investors who have discerned its future potential earlier on, there exists some great temptation for people to jump on the blockchain bandwagon. Apparently the growing acceptability of digital fiat money as a result of technology development on one hand, and the failure of the paper money to mitigate inflation and other economic disequilibria since the disappearance of the gold standard on the other, various forms of cryptocurrencies including Bitcoins (referred to as the king) appear to roar toward wider recognition. However, an emerging phenomenon associated with cryptocurrency revolution is an observed significant fluctuation (the tide) in its value and thus a subject of discussion within Islamic finance community and beyond. In the midst of this also is the current agitation founded on some of the Islamic law (Sharīʿa) view on the necessity of asset-backed money, to be extended to the current cryptocurrency innovation for its transformation into a Sharīʿa compliant precious metal backed currency. The big question now which this chapter sought to provide the answer is, what are the implications of these developments to a more established and widening global phenomenon of Islamic finance and its development in Muslim world vis-á-vis aspirations for sustained economic development. The work finds that cryptocurrencies would generate three advantages over all forms of money including gold through: establishing a unified financial system through its standard decentralization, being rarer than gold and its significant mitigation of inflation. It is also noted that the prevalent foreign exchange risk resulting from the underlying activities (rather than the currency itself) is free from speculation (Gharar). It is, therefore, recommended that stakeholders in the Islamic Finance world should not be passive but be proactive in commencing processes to develop technical notes, standards, and operational guidelines to partake in the inevitable migration to cryptocurrencies.

Details

Disruptive Innovation in Business and Finance in the Digital World
Type: Book
ISBN: 978-1-78973-381-5

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Book part
Publication date: 26 August 2019

Syed Fadhil Hanafi and Syed A Rahman

Regulation of digital currency is still at its infancy as authorities around the world grapple with its mechanics, and study its impact and the best method to regulate it…

Abstract

Regulation of digital currency is still at its infancy as authorities around the world grapple with its mechanics, and study its impact and the best method to regulate it. Significant increase in the use of digital cryptocurrency based on Blockchain technology post-Bitcoin phenomenon had challenged the conventional idea of central bank monopoly in currency issuance. This had also raised concern that digital currency being used as an instrumentality of crime given its anonymity feature that allows for the flow of funds without tracing and the fact that it is built on trustless system that provides security of transaction. This concern, plus other consideration including the prospect of issuing central bank digital currency, had driven some authorities around the world to adopt countermeasures either via an outright ban or a regulatory regime that suits the nature of digital currency, which is purely virtual and anonymous. However, in coming out with an appropriate legal regime, authorities faced multiple difficulties especially when the pace of legal development does not sync congruently with the rapid progress of technology. In addition, given the growing prominence of Islamic finance around the world, questions also arise pertaining to the legality of digital cryptocurrency from the Islamic perspective. Through a qualitative study of relevant literatures as well as legislations in different countries, this chapter discusses the various categories of digital currency, its position from the Islamic perspective, regulatory regimes of digital cryptocurrency in selected jurisdictions and challenges faced by authorities around the world in regulating this new medium of exchange.

Details

Emerging Issues in Islamic Finance Law and Practice in Malaysia
Type: Book
ISBN: 978-1-78973-546-8

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Article
Publication date: 8 May 2018

Mohammed Ahmad Naheem

The purpose of this paper is to consider the recent (Dec`15) introduction of the Bitlicensing rules in New York and consider from a banking perspective how this will…

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18042

Abstract

Purpose

The purpose of this paper is to consider the recent (Dec`15) introduction of the Bitlicensing rules in New York and consider from a banking perspective how this will impact on their own risk assessment processes. The paper also outlines the challenges of applying financial regulation to companies that have an area of expertise and business that is more aligned to software development, rather than financial service provision.

Design/methodology/approach

This paper is a viewpoint paper, which offers a critical discussion on the FATF guidelines on virtual currencies. The paper compares developments that are currently occurring within the virtual currency sector in particularly the new Bitlicensing process in New York State and discusses the implications to the banking sector on risk assessment processes for virtual currency transactions.

Findings

This paper will benefit the banking and regulation industries as well as economic and banking academics and anyone with an interest in virtual and digital currency technology.

Originality/value

This paper is unique in that it examines the issue of virtual currency regulation from a banking perspective. It explains the virtual currency technology as a means to be enhancing banking risk assessment, for clients seeking to incorporate virtual currency transactions into their business. This paper impacts on the banking and regulatory sectors because it critically examines the current practice of over regulation and the impact that this has on alternative financial systems, such as digital and virtual currencies. The paper offers a theoretical framework as well as citing current practical reports of how regulation has already started to affect the financial services landscape. The impact of getting this wrong can lead to increased criminal activity, and this paper highlights how susceptible the financial sector is to this.

Details

Journal of Financial Crime, vol. 25 no. 2
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 20 January 2020

Ahmet Suayb Gundogdu

The purpose of this paper is to explore an alternative Islamic monetary system in which money is created from supply chain grassroots based on work effort and is…

Abstract

Purpose

The purpose of this paper is to explore an alternative Islamic monetary system in which money is created from supply chain grassroots based on work effort and is accessible to people as long as they offer goods and services demanded by others.

Design/methodology/approach

This study adopts the critical realism approach and highlights the challenges with the present monetary system. It also proposes to address these challenges through an alternative monetary system in which money creation starts from the grassroots of the supply chain. The proposed system extends the real-world complementary currency concept of barter to a holistic electronic trading platform, which includes chain barter alternatives, licensed warehouses and electronic warehouse receipts within the Islamic microfinance practice, thereby facilitating cross-border trade and international trade payments. An electronic currency, valued at the worth of goods produced in the supply chain, is introduced as the medium of exchange.

Findings

The problem with past monetary systems can be addressed through current information technology and supply chain management to enable a monetary system and money creation based on real economic transactions.

Originality/value

This study proposes an alternative monetary system, which is only possible by harnessing supply chain management with money creation. The proposed monetary system may be considered, should the present system fail or need to be improved.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 2
Type: Research Article
ISSN: 1759-0817

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Article
Publication date: 7 January 2019

Suhail Sinna Lebbe, Azhar Mohamad and Imtiaz Mohammad Sifat

The purpose of this paper is to investigate the drivers of the behaviour intention to use the Silver-Backed Mobile Payment System (SBMPS) among the residents of…

Abstract

Purpose

The purpose of this paper is to investigate the drivers of the behaviour intention to use the Silver-Backed Mobile Payment System (SBMPS) among the residents of Kattankudy, Sri Lanka.

Design/methodology/approach

Based on technology adoption model theory, a conceptual framework was devised, which was later tested via structural equation modelling (SEM) using valid responses from a survey questionnaire.

Findings

The results indicated that perceived usefulness and subjective norms have positive relationships and perceived risk a negative relationship with people’s behavioural intention to adopt SBMPS. In addition, the respondents were primarily motivated by faith (Islam) and also by economic advantages to adopt SBMPS.

Research limitations/implications

Religion, culture, gender, income level, age and educational level could be used as moderating factors for better understanding of people’s behaviour intentions. A Multi-cultural demographic may shed further light.

Social implications

This paper not only makes awareness of the importance of real (commodity) money but also provides the understanding of people’s willingness and the underlying motivations to practically implement the system without threatening the legal tender.

Originality/value

Extant research has mainly focused on the validity and the conceptual ideas to return to gold and silver money. This paper has been an extension to practically implement real money without threatening the legal tender by investigating the determinants of people’s willingness to return to silver money and understanding their motivations underlying those decisions

Details

Journal of Islamic Accounting and Business Research, vol. 10 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

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