Ravages of Paper
In theory, the paper money can have a stable value but, in practice, paper money has always resulted in inflation.
|When the Government controls
the inflation and regulates banking interest rate, it cannot be regarded
as usury because in verse 2/279 the need for justice both for the borrower
and the lender is prescribed and under the paper currency system loss of
purchasing power of money occurs.. Holy Quran prohibits 'RIBA', which
literally means 'excess' and is usually translated as usury or interest.
Bible also prohibits usury. The meaning of usury is an excessive or illegally
or immorally high rate of interest charged on borrowed money. Interest
means the payment made for the use of another person's money. In economics,
these days, it is regarded more specifically as a payment made for capital
and the compensation for loss of its purchasing power as well as the charges
for its use.
How Paper Money Becomes Riba (usury) in Reverse?
At the dawn of Islam the money consisted of gold and silver coins like most other countries. In the long run due to population explosion gold and silver become scarcer than the labor and their value appreciates and while the value of labor regresses in terms of gold and silver.
In verse 2/279 of Holy Quran the need for justice for both the borrower and the lender is prescribed. Therefore when the Government controls inflation and regulates banking interest rate, it cannot be regarded as usury.
Origin of British Pound
What Happened to Gold and Silver Dollars?
The Rupee Currency note of 1949 is no more in use since last several years
Since then, circulating currency has been fiat money, the worth of which is derived from its purchasing power rather than its redeemable value. Silver dollars, however, continued in circulation until 1965, when they almost disappeared because the value of their silver content exceeded their face value. During the 1970 the Gold standard was abandoned altogether as the paper currency in circulation far exceeded the gold reserves required to redeem that.
As a professor of
economic Lawrence Parks opines: ""Today, fiat money, money that is created
out of nothing and without work, is used worldwide. The reason monetary
authorities have gotten away with this prima-facie fraudulent money is
a combination of coercion (specifically legal tender laws in every nation
and restrictions the IMF has put in
In theory, the paper
money can have a stable value but, in practice, paper money has always
resulted in inflation. The experience of most countries with paper money
following the disconnection of their money from gold standard shows that
during the 1970s, the rate of inflation accelerated from creeping into
galloping, interest rates rose up
In 1989 the old 1804 Dexter Dollar coin was auctioned off for $990,000? In 1997 another 1804 dollar was sold for $1,650,000?
The old golden coin
of Pakistani RS. 500 is out of circulation
The old golden coin of Pakistani RS. 500 is out of circulation
Fall In Purchasing
Power of Paper Money
Regulating Banking Interest
Paper currency when it is not backed by a promise to redeem by Gold invariably causes loss of purchasing power as we have seen during last 50 years specailly after gold standard was abandoned by IMF in 1970.
Maynard Keynes (1883-1946), British economist said, "The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."
"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." _Ernest Hemingway, U.S. author
These certainly are against the principles of good governance under Islamic ideals.
Sale of Goods on Installments
Zaid acquired a loan of RS. One million
from his friend for building a house. At that time the gold was worth RS.
50 per gram. The loan was valued as 20, 000 grams of gold and it was agreed
that every year Zaid would give 1000 grams of gold and the loan would thus
be repaid in 20
Examined in the light of different fatwas there is no element of Riba in this agreement and it is admissible under Sharia.
On the same date Bakar is sanctioned a Loan of RS. One Million by a bank on the interest rate prevailing at the time and he has to pay the annual installment of RS. 90, 000. Thus in 20 years he would be paying over RS. 18 Lacs for a loan of RS. 10 Lac and the excess of over RS. 8 Lacs is said to be RIBA and Haram. (The annuity of RS. 90, 000 per annum would accumulate to a bigger amount than 18 Lacs depending upon the interest earned by the bank.) Supposing this was interest free loan for RS. 10 Lace with annual installment of RS. 50, 000 for 20 years, how the lender would be compensated for loss of purchasing power of money under the installments paid? Will it not be unjust? In verse 279 of surah 2 the need for justice for both the borrower and the lender is prescribed. Some people opine that an agreement under verse 2/282 can include compensation for use of money and that cannot be regarded as riba but this view is not accepted by the majority. Is FSC is likely to accept that view in future? Some hope so.
Now let us examine the predicament of Zaid. He is experiencing the increase in the price of gold every year. In the 20th year his last installment of 1000 gram of gold would alone cost him RS. 5 Lac in gold purchase and he ends up by paying over 35 Lacs in gold purchases to redeem his loan, which was worth only RS.10 Lacs 20 years ago and the excess of 25 Lacs that he spent on gold cannot be regarded as Riba.
Of course, under the fiat system of money (Paper Currency without any Commodity base) the banks and financial institutions can adopt the Gold conversion system for their loans and advances and other transactions but its administrative cost would be quite great and control is also problematic.
Having a gold base for money is a sound practice. But as the Governments have issued currency notes up to umpteen times of their actual gold reserves they may not be able to switch over to commodity base. Moreover, since 1971 IMF rules prescribe that a member country must not have any commodity base for money.
Printing of currency notes without any base or beyond the reserves required maintaining its stability, causes fall in purchasing power of the money and we have seen the demise of gold and silver dollar as well as India's silver Rupee and other coins in the subcontinent such as paisa, annas, chowanni etc. and now the Rupee is worth less than an Anna of yester years. On the other hand in the old days where there were metal coins the worth of money used to appreciate against consumable items. Now the printing of one Rupee note costs more than its face value and it has been abolished and the RS. 5 note has also gone.
Let us pray the speed at which the purchasing power of money is regressing is contained.
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Riba, Money and Currency,