According to Islamic Law, no merchandise can be imposed as the 'only money'. Imam Malik defined money as "any merchandise commonly accepted as a medium of exchange." That means that people are free to choose their medium of exchange. Artificial money is a coin or a piece of paper without value as merchandise, and whose only 'legal value' is established by the state. That is not permitted. But even if paper-money was a debt of real wealth - gold, silver or other specie- which it is not, it would not be allowed either, because in Islamic Law debts cannot be used as a medium of exchange. Their use is restricted within their own nature as private contracts. Imam Malik, we have already noted,related to us in his Muwatta:

"Yahya related to me from Malik that he had heard that receipts were given to people in the time of Marwan ibn al-Hakam for the produce of the market at al-Jar. People bought and sold the receipts among themselves before they took delivery of the goods. Zayd ibn Thabit and one of the Companions of the Messenger of Allah, may Allah bless him and grant him peace, went to Marwan ibn al-Hakam and said, 'Marwan! Do you make usury halal?' He said, 'I seek refuge with Allah! What is that?' He said, 'These receipts [sukuukun] which people buy and sell before they take delivery of the goods.' Marwan therefore sent guards to follow them and to take them from people's hands and return them to their owners."
(Al-Muwatta, Book of Commercial Transactions, 44)

In the past, when people were free to choose, they chose gold and silver. If we are again allowed to choose most probably we will choose gold and silver. The important thing is that paper money cannot be imposed on us.

Freedom gives a basket of merchandise as possibilities. That freedom to choose (gold, silver, platinum, etc.) leads to a different monetary culture. Let us look at the problem of artificial inflation: A chicken at the time of the Prophet, salla'llahu alaihi wa sallam, cost one Dirham. Today in Europe a chicken costs approximately the equivalent of one Dirham. In 1400 years the 'inflation effect' in silver is practically zero. On the other hand, in the last twenty five years in Western Europe the prices have at least multiplied by ten. In the next twenty five years it will also be multiplied by ten. This is without mentioning, places like Mexico, Brazil, Turkey,etc.

The Dinars and the Dirhams in Islam were made of gold and silver. Because of their small weight they served perfectly for the big and small trading in the city and the big fairs. Their weights are particularly suitable to be used as a medium of exchange.

Go to Chapter 5

The Return of the Gold Dinar