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The most basic uses of gold and
silver coins are:
Gold and silver coins, as money, can be used to buy commodities
and services. They can be obtained by selling the commodities or services.
Their price will be established in relation to the goods they are exchanged
for. Quite naturally, at the beginning the most dominant reference for
price will be paper-money, for all the new Dinars and Dirhams will have
to be purchased with paper-money in the Mint. The price will be first
uniquely established by the value of the coins at the Mint.
The coins will start to circulate through the community and the Mint will
continue transforming more and more paper-money into Dinars and Dirhams.
At a certain point the amount of coins in circulation being bought and
sold by the public in exchange for other goods, will reach such a level,
that the amount of new coins coming from the Mint will be marginal in
relation to the total amount in circulation. At this point the price of
the Dinar will naturally be established in terms of a new set of references
of the goods for which it is mostly exchanged, just like the price of
paper-money is usually referred to certain common merchandise and services.
People will say one Dirham can buy a chicken. That is the price of a Dirham.
Dinar and Dirham prices are independent of each other. There is no fixed
rate of exchange between them. The exchange rate one day may differ from
the next, just like it occurs with any other merchandise. Their relative
value depends entirely on the effect of supply and demand in the market.
This movement of the currencies within the market is what guarantees their
stability. Once gold has been established, let us say in a country, and
a sudden casual increase takes place - for example, by bringing into circulation
hoards of treasure, which had been concealed - the natural effect would
be a rise in prices that would affect trade. It will check exports, and
encourage imports; the imports would exceed the exports, the exchanges
would become unfavourable and the new stock of money would diffuse itself
overall countries with which the supposed country carried on trade, and
from them progressively, through all parts of the commercial world.
The existence of more than one currency, like having gold and silver,
gives the individual a choice. It would not be uncommon to coin platinum
as currency as well, for what matters is that the people have the right
to decide which one is their medium of exchange. If one currency consistently
loses its value, people will abandon it and chose another, unlike most
countries where the governments keep for themselves the right to establish
their legal tender.
Gold is independent of the financial system and the governments. It prevents
governments from taxing their own people through the currency. Keeping
money out of the control of politicians is its best guarantee for stability.
Ultimately,the privatisation of money will have to be the final resort
of all free societies in their search for a sound money to carry out their
commercial activities.
Payment of Zakat is perfectly explained and regulated
in Islamic jurisprudence. For centuries when Islamic Law was enforced
by the Caliph or an Amir, the Zakat was collected in gold and silver.
When paper-money was first being introduced, during the last century by
the colonial powers the traditional 'ulama rejected it as being opposed
to Islamic Law. According to them paper-money was to be treated as fulus
or a lower category of currency with limited use, basically just as 'small
change'. It is, for example,not allowed to make a qirad with fulus. Among
those 'ulama, there stands out the famous scholar of Maghribi descent,
Shaykh Muhammad 'Illish (1802-1881)who was the Shaykh of the Shaykhs of
Maliki fiqh in the University of Al-Azhar in Egypt. He wrote in his Fatwa:
"'What is your judgement in respect to the paper
with the stamp of the Sultan that circulates like the Dinars and the Dirhams?
Is it obligatory to pay Zakat as if it was a coin of gold or silver, or
merchandise, or not?'
I responded exactly in the following way:
'Praise belongs to Allah and blessing and peace upon our Master Muhammad,
the Messenger of Allah. Zakat is not to be paid for it, because Zakat
is restricted to the flocks, certain types of grains and fruits, gold
and silver, the value of rotational merchandise and the price of the goods
withheld. What is referred to previously does not belong to any of these
categories.
'You will find an explanation by comparison with the copper coin or fulus
with the stamp of the Sultan which is in circulation and for which no
Zakat is paid since it does not belong to any of the categories mentioned.
It says in the Mudawwanah: "Those who possess fulus for over a
year for a value of 200 Dirhams do not need to pay Zakat unless it is
used as a rotational merchandise. Then, it should be treated as if it
was a merchandise."'
In the At-Tiraz, after mentioning that Abu Hanifa and Ash-Shafi'i
obliged to pay Zakat for the fulus, [is stated that] since both
affirm that the payment of Zakat is from value, and considering that Shafi'i
has two contradictory opinions about the subject, the opinion of the School
is that there is no obligation to pay Zakat for the fulus since there
is no discrepancy in the fact that what counts with respect to the fulus
is not its weight or its quantity but only its given value. If the Zakat
was obligatory by considering its substance as a merchandise, then the
nisab would not be stipulated according to its value but according to
its substance and its quantity, as is the case with silver, gold, grain
or fruits. Since its substance [paper] is irrelevant [in value]
in respect to the Zakat, then it should be treated as the copper, iron
or other similar substances.
And Allah, ta'ala, is the Wisest. And may Allah bless and give peace to
our Master Muhammad and his family."
(Translated from the Al-Fath al-'Ali al-Maliki pp. 164-165)
This Fatwa considers paper-money to be fulus, because
it only represents money and does not have value as merchandise. It follows
that since Zakat cannot be paid in fulus, which has no value as merchandise,it
cannot be paid in paper-money, whose value as weight of paper is nil.
On this basis the obligation to restore the use of the Dinar and the Dirham
as payment of Zakat becomes clear.
When the millions of Muslims who now make their payment of Zakat in paper
money do it in newly minted Dinars and Dirhams, they will put millions
of gold and silver coins into the mainstream of the daily commercial activities
of our communities. That single act will become the most important political
act of the century, opening the path towards the establishment of our
own halal free currency breaking away from the usurious financial system.
Gold and silver have been the universal currency of the
world for centuries. Gold is the same in China as in Africa. Gold as a
medium of exchange for international payments eliminates all the artificial
barriers created by the existence of different paper-money in every country.
With the use of modern fast and reliable means of transport, the gold
could be made available physically in any of the major trading cities
of the world within hours, thus allowing the emergence of specialised
companies who will offer the transport of the physical gold anywhere.
Clearing systems should be allowed to avoid unnecessary transportation
of coins. This could be done very efficiently with modern telecommunication
systems. The only restriction is that the money entrusted to the transport
agencies should be disallowed from being lent to third parties, as banks
do.
The supervision of the currency under the World Islamic Trading Organisation
will guarantee its monitoring and expand constantly the access of the
physical gold at the cheapest possible price. This prevents speculation
from taking control of the currency.
There are two basic measures to prevent speculation: first, keeping the
transportation costs as low as possible in order to make the profit of
the speculators not worth the effort, and second, to actively forbid the
lending and borrowing at interest.
A Dirham at the time of the Prophet, sall'allahu alaihi
wa sallam, could buy a chicken, and today a chicken could be bought in
Britain for the equivalent price of a Dirham. That means that one thousand
four hundred years later inflation is practically nil. There is no paper
currency in the world that could offer such a record.
It is clear that saving in gold is a protection against the manipulation
of paper currency by governments and financial speculators. Although it
could be argued that gold, as material, is also subject to periodic fluctuations,the
reality is that if compared with the relative value of other merchandise
the value of gold remains very stable, definitely more stable than any
paper currency.
Dinars and Dirhams are therefore an ideal instrument to save for future
needs without being impotently robbed by paper-money's constant inflation.
The Price of Gold and Silver
In as much as precious metals are imported and sold like
other commodities and they conform to the ordinary way of commerce, their
value depends on the general principle of offer and demand. And the precious
metals are just part of the general equilibrium between nations established
by the demand in foreign countries of local produce in relation to the
local demand. But there is nothing peculiar in the precious metals to
escape this equation.
So long as the precious metals are wanted for the purpose of jewellery,industry
or money the demand increases with their cheapness, as with any other
commodity. The cost of obtaining them depends on two elements: the purchase
cost and the transportation cost, just like any other merchandise. In
general the transportation cost will increase with the transport facilities
and the distance. The purchase cost will depend on the demand of exportable
products and the added value of those exports.
Countries whose exportable products are most in demand abroad, and have
the least demand for foreign goods, and also enjoy the smallest transportation
costs, are those in which money will have the lowest value or in other
words,in which prices will range the highest. In addition, a country which
produces exportable goods with a high level of productivity, creates a
large added value to its products. Therefore, the 'cost' of the gold and
silver to the individuals will be the lowest.
Money as an international medium of exchange is sent from one country
to another for various purposes: payment for goods, payment of rents by
absent owners, tributes and patent fees from patent and copyright monopolies,
interest from usurious loans, and emigration of capital for investment.
Today this medium of exchange consists of national notes, and their substitutes.
The difference between the demand between two different national currencies
is settled by a different exchange rate between the two.
If England had a larger sum to pay to France than to receive from her,
there would be people in England requiring more French francs than there
are available in England. If England were an individual it would be bankrupt.
But based on the trust placed on the Pound Sterling , what happens is
that an adjustment on the exchange takes place, assuming that other measures
are not taken to increase the demand for English pounds, like for example,
raising interest rates. It would be possible to buy more English pounds
than before for the same amount of French francs.
If, on the contrary, England had more money to receive from France that
to pay, there would be people in France requiring more English pounds
than there are available in France. The effect, assuming that other measures
are not taking place, would be a variation in the exchange, so that more
French francs than before can be bought for the same amount of English
pounds. The 'ex-change' thus determines the power which the currency of
the country has for purchasing the currency of other countries.
The different exchange rate allows countries to run commercial deficits
for long periods of time by diffusing the deficit through the value of
the currency. The holders of the currency will have to pay more for what
they import. The rise in prices will tend to diminish the purchasing power
of foreign products and the demand for foreign currency, placing a limit
on what the country can actually import.
The great inconvenience of having different currencies, instead of having
the same one, remains in the transactions of most countries today. It
is justified by the immediate control that governments can exercise over
all the holders of their currency. Governments can transfer their bankruptcy
to all the holders who can be 'taxed' with an equivalent devaluation in
the exchange of the currency at any given time.
Go
to Chapter 11
The Return of
the Gold Dinar
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