Islamic Money against the Euro and Dollar

Publication: AA Baig Shariah Rulings and Fatwas

Provider: AA Biag

March 9, 2008

Europe celebrated its momentous event of a single currency for its eleven participating
members that have qualified to join the European Monetary Union according to its
Convergence Criteria. Following this, it is likely that Britain, Sweden, Denmark and
Greece that have either opted out or were not qualified according to the Convergence
Criteria at this time, will join by the year 2002. By the year 2002 a single currency called
the Euro will become the commercial medium of market exchange in Europe for the
participating countries.

By establishing a single currency for the exchange of goods and services domestically
and internationally, the Euro will become a determining factor of a unified monetary
policy, fiscal policy, exchange rates, interest rates, and thereby, also of productivity and
technological consequences of these economic changes in the participating countries.
Internationally, global capital markets and investment outsourcers will see the rise of two
competing currency mediums, the U.S. Dollar and the Euro. Countries around the world
will be holding their foreign reserves and transacting their tradable in terms of these two
currencies. International currencies will thus become convertible in terms of two
competing units.

At such a juncture, the Muslim mind must recount as to what position the Muslim World
holds in the midst of the global division of capital markets between these two competing
super-currencies? What would be the state of her own resource valuation in the global
scene? Do the Muslims have an agenda for change? If they do have an Agenda for
change, what are the constructs of that Muslim future?
Until the end of World War II the Western Hemisphere has been engaged in the most
heinous kinds of wars and civil strife within itself. Yet through the Bretton Woods
Institutions established in 1944, followed by a number of economic and monetary unions
between the members of the Western Hemisphere, these same warring nations could rise
to a social contract that eliminated wars and political dissensions between them. It was
indeed a civil accord enacted within the institution of democracy that did the work for the
Western Hemisphere.

The Muslim World -- with its teeming millions, vast resources, and above all with the
greatest miracle, the Qur'an, along with the guidance of the Prophet Muhammad, Sunnah,
the great Islamic legacy of Shura (consultation, discourse and interactions), Ijtihad
(epistemological inquiry) and Ijma (consensus), all of which are premised on the exercise
of deep Islamic knowledge, tolerance and discourse -- could not realize its unity. What
are then the structural issues according to which Europe could unite and the Muslims
could not?

It will be too shallow an answer to this question to differentiate the Western World in
respect to its democracy and the Muslim world as being bereft of democracy. Democracy
is a political philosophy that flourishes on the principles of conflict guiding markets in
the form of competition and capitalism that thrives on the power of corporations and the
acquisitive passion for wealth. Politically, democracy thrives on the back of institutions
that muster power and hegemony by majority rule. Any moral value of doing things and
of directing economic resources is subsumed within market consequentialism.

There is no other premise from which democracy derives its rules of conduct than the
collective power of individuals let loose in a world of competing behavior. Such is the
nature of individualism that aggregates itself from the level of individuals to institutions,
to governments and to the global capitalist order. On such a utilitarian world view thrives
the Western meaning of democracy.

Now take away from democracy the ultimate supremacy of the individual, the powerful
lobby groups and thus of governments so formed. We will find that democracy and
capitalism weaken into dysfunctional states. With this weakening comes about the
collapse of the entire economic, social and political edifice on which democracy,
capitalism and western institutionalism confiscate on others to survive.

Thus the imitation of Western democracy is as self-defeating as is the present days'

Muslim political vacuity in the absence of a well-defined Muslim social contract. On the
other hand, the divide between Islam and the West is based on two polar world views that
cannot cross lines for a permanent convergence. Any cross-fertilization between the two
can only be in terms of mechanical methods that we can share. It can never be in terms of
the core methodology of understanding and conducting life in comprehensive ways.
When Muslim forgot this subtle difference for a long time now they became blind to the
many trappings of Western ways of thinking while being unable to understand this
inimical culture, and thereby, being unable to adapt to it. When rulers and demagogues in
the Muslim World imitate the Western designs and prevail over their citizenry, they try to
lock nations into expensive bottlenecks of development, costly technological change,
unequal distribution of power, deprivation of freedom and rights to the masses. Western
lobbying is perpetuated through this machinery of autocratic governance as also by the
Muslim World's lethargy and subservience to the costly technology, de-equalizing market
processes and the concomitant governance of the West genre. To live a day in such
inhuman bondage is yet another moment of increased slavery of the Muslim mind, body
and soul to Western masters.

The European Monetary Union on which is premised the Euro was greatly financed by
Petro-dollars that were held as assets by the wealthy Muslim rulers in EMU. By the same
token, when the capital surplus Arab countries bought assets in the International
Monetary Fund, they in turn tightened the grips of the IMF over these assets by securing
Arab capital in Western capital markets instead of in the Muslim Countries.
Consequently, the double whamy fell on the Muslim World. On the one hand, the
absence of any expectations for good financial support could not generate the investment
climate in the Muslim World. On the other hand, there was never enough liquidity
available to support investments in the Muslim World. Finally, when global capitalism in
its oppressive attire of global governance over markets and institutions arose from the
West, investment capital entered Muslim countries as speculative short-term capital.
These were riddled and driven by interest rate instability and proved to be unsustainable
both in terms of projects and in capital markets.

Thus the alienation of the Muslim World from its own fundamental roots of
understanding and doing things and its enslavement to the alien culture drifted the
Muslim World from its solidarity, which could otherwise have seen the rise of parallels
like the Euro and the Dollar in terms of the Islamic Money, Islamic Currency, Integrated
Islamic Capital Markets and a Globally Interlinked Islamic Common Market. Herein,
would be solved the present days problems of economic instability, currency run-off,
investment needs, political subservience, inequity and poverty, all of which plague the
Muslim World today. Along with this reconstruction would arise the political stability
and organization for the spread and practice of Islamic Transformation. Thus, it would
arise the Muslim march toward the Ummah as the Islamic globalization process.

The Islamic globalization process of Ummah as the goal of the Muslim World would
look at markets in ways contrary to the capitalist greed and human deprivation now being
unleashed upon the Muslim World. The irony is abhorring that in the face of exorbitant
wealth possessed by a few, wealth that lies in the hands of and are controlled by Western
masters, there continues to be abject deprivation and impoverishment among the majority
of Muslim populations.

Islamic Money would be based on the 100 per cent reserve requirement linking monetary
valuation with real sectoral activities and not with speculation or promissory notes. The
productive yield arising from such a real monetary mobilization would solve the problem
of low productivity among factors of production. The participatory enterprises in the
midst of these transformations and real monetary linkages would remove the relevance of
interest rates. Such a system would replace interest transactions with resource
mobilization into participatory enterprises. Consequently, economic efficiency,
distributive equity, ownership, property rights and empowerment would increase across
participatory enterprises. Poverty would be eradicated and alleviated through the force of
such participatory entrepreneurial activity and by the direct linkages between money and
real sectoral activity.

This freedom of participatory decision-making and ownership of assets would mean the
rise of the Islamic Social Contract based on the process of Shura (discourse and
interaction) which is organized and realized by the understanding and application of the
Precept of Unity of Allah (Tawhid) in all walks of life and thought. Such a focus will turn
away the Muslim global order from the anthropocentric character of conflict, competition
and individualism that grounds democracy as a political philosophy in the West. The
reversal will instead be towards ethical governance of markets and exchange under the
enlightened process of learning by doing by discourse, complementarily and integration
as created by Islam.

The Islamic Common Market and the Islamic Capital Market would be a global
integration of various regional Islamic blocs on the basis of the coordinating mechanism
of the Islamic Social Contract in terms of the money-real sectoral linkages, inter-
communal trade and institutional guidance of these across the Muslim World. The effect
of this interrelated monetary and real sectoral activity would be the formation of the
Islamic currency revolving around the financial and economic instruments that establish
the money-real sectoral linkage. Thereby, an increase of spending in the Islamically
recommended good things of life would create the environment of abundance in life-
fulfilling goods. This in turn would generate income and wealth from real returns.

The abolition of speculation and its replacement by long-term Islamic investments in

diverse Islamic opportunities, complementary possibilities and technological outlets, in
government and consumer spending across the populous Muslim World, will bring about
the much needed stability in markets for financial instruments and real goods and
services. Hence a productivity linked stable exchange rate will emerge from such a stable
market order. The enhancing effects of stable exchange rates and prices will revert to
further resource mobilization, wealth, growth, development and social well-being.

Zakat will arise from the growing wealth of such a dynamic social economy and would
be increasingly channeled into productive outlets for ameliorating the poor and
guaranteeing those human resources and basic needs. Institutions for mobilizing Zakat as
an international resource will create microenterprises and human resource development
for poverty alleviation. The great institutions of social well-being based on the
mobilization of Zakat into human development for achieving security, dignity and
productive transformation of the recipients, while always allocating a part of it in current
consumption, for the destitute, the sick and the old, would generate industry and
enterprises around such uses of the Zakat Fund. Gross unemployment and income
disparity will thus be eliminated. With social security thus returning to the Muslim
nations, social malaise will also decline. Much will be saved for directing into the higher
pursuits of life.

With such momentous changes in the Muslim World towards the Ummah, the Dollar and
the Euro will prove to be weak currencies before the Islamic Money and Islamic
Currency, for they will continue to be engulfed in instability caused by interest rate
movements. These will permanently disturb their currency values. The Dollar and Euro
will thus continue to be simply monetary units governed by uncertain interest rate and
exchange rate mechanisms. Monetary policy will remain independent of real sectoral
activities. Price movements will thus be affected by the uncertainties ensuing from the
monetary sector. Such an adverse effect of the monetary sector on the real sector will
cause instability in both the real and the financial sectors.

Such instabilities will remain as the great predicament of the Euro and Dollar. The
contrary is true of a competing monetary system and its currency that can deliver a 100
per cent reserve requirement while interconnecting money with real sector activities.
Here then lies the ultimate financial architecture by means of Islamic Money, Islamic
Currency, Islamic Capital Market and Islamic Common Market .These mark the worldly
model of the Ummah. In it the lure for wealth is strategically replaced by the goals of
production and distribution of wealth through the money-real sector linkages. This
abolishes interest rates from economic transactions and premises human well-being on
resource mobilization into Islamic possibilities.

Let Muslim around the world, nationally, sub-nationally and collectively take up serious
work in this direction of Islamic Transformation toward the Ummah in the new
millennium. Let this invocation remain our Ramadhan Resolution 1419H for its active
emulation into the new Islamic millennium. May Allah help us in our rightful endeavor.

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