REFLECTIONS ON MONEY AND FAIR EXCHANGE¹

by Adi Setia²

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A note to readers: These reflections arose out of email exchanges between myself and a number of people in our informal networks concerned about reviving classical mu‘amalah in a spirit of close, creative engagement with modern economics and finance. The original discursive tone of these exchanges have been largely retained with minimal editing for clarity and grammatical refinement.

1. I think it is very important not to turn the dinar-dirham movement into a cultish one controlled, defined and certified by a particular group of Muslims, even if that group has done a lot in pioneering the Ummah’s return to the concept and practice of true, real money of intrinsic worth and value.

2. The first thing we should all understand in this regard is that the dinar and dirham coins are “certified” not by any third party (i.e., third to the immediate two parties to an exchange) calling itself the Murabitun or World Islamic Mint, or KGT or Wakalah Nusantara or whatever, but by the very fact of the intrinsic physical amount of gold or silver that that coin contains, regardless of its provenance (i.e., the minter or issuer). That standard intrinsic physical amount of 4.235 grams of pure gold for the dinar, and 2.9645 grams of pure silver for the dirham is already well-defined by the Shari‘ah in the classical books of fiqh,³ not by any particular shaykh or amir or Muslim group, otherwise that would amount to in effect a private monopoly on the minting and the supply of those dirhams and dinars. That means that a silver bar of say 30 grams of any provenance would be physically equivalent to approximately 10 dirhams in weight of silver and thereby it can be exchangeable for 10 standard dirham coins or 10 dirhams’ worth of goods or services.

3. So in an Islamic marketplace, all gold and silver, in coin or bullion form or even in nugget form, can be accepted as money in principle and can be exchanged into standard dinar and dirham coins mithlan bi mithlin by weight. During the time of the Salaf, before dinars and dirhams were standardised into coins by the caliphs, people would weigh their gold or silver money (in coin or bullion or even nugget form) before paying for purchases or services. Of course, standard coins minted by a responsible transparent minter/issuer will render exchange easier, and if some one can come out with a good table to list the “exchange ratio” between different gold and silvers coins of different standards or between coins and bullion, that would be a great service to the Ummah. In this regard, any Muslim community can set up a community waqf mint (CWM) and mint their own dirhams and dinars according to Shar‘i standards. In the community waqf marketplaces, there can be an official sayrufah or money-changer to facilitate conversion of paper money or non-standard coins into the standard coins for trading in the marketplace. This way, transactions in the marketplace will be much simplified and facilitated since all market participants (buyers and sellers) will be using standard coins of standard weights. 

4. So, even if dirham A was bought for RM 25 in paper money, while dirham B for RM 2 in paper money, in the Islamic market place dirham A would still be physically equivalent to dirham B in weight and hence in value, so a chicken can be bought for either dirham A or B or even for a nugget of silver of the same weight as the dirham.

5. This means we need to slowly build up a community market ecosystem in which everything bought and sold therein can be priced directly in standard dirham or dinar, without needing to express the price in paper money terms first. This can be easily done based on the generally accepted local market benchmark of say 1 dirham = 1 good fat chicken, and 1 dinar = 1 good fat goat, and from there people can eventually work out the relative prices of other goods and services in terms of dinars and dirhams, i.e., relative to the various goods and services themselves and relative to the dirham and dinar. This will also lead to the eventual establishment of a vibrant community gold and silver market for coins, bullion, and rough uncast gold and silver nuggets.

6. Hence, any responsible community organization (NGO, Muslim Village, Waqf Board) guided by a learned faqih (learned in classical adab and fiqh of mu‘amalah) can mint the dirham and the dinar based on the standards already set out clearly in the four schools of fiqh (say the Shafi‘i school in the case of South-east Asia), and these coins would be recognised by other like-minded communities and interchangeable with other dirham and dinar coins minted by other communities. In this way, the dirham and dinar can be both a community and an inter-community money and currency.

7. Eventually, what we really need is not the World Islamic Mint or other self- proclaimed “global” and large opaque body, but a local or regional association or society of autonomous but informally networked community dirham-dinar minters/issuers to faciliate convergence on best practices, best technology, and best standards/quality, and so on and so forth, guided by a board of fuqaha of the four schools who are in turn nominated by their communities to serve on the board. These community fuqaha and muftis can work in tandem with like-minded lawyers, accountants and business professionals to further facilitate this careful and well-informed transition into a dinar and dirham economy.

8. In general, since the dinar-dirham project is in the interest of the public and common good of the Ummah as a whole (maslahah ‘ammah) and not in the interest of any particular individual, businessman, shaykh, tariqat or jama‘ah, it is best for communities to set up waqf or public foundation structures for minting the dinar and dirham coins, whose organizational and funding structure, cash flow, accounts and balance sheets are published on their websites for public scrutiny. This transparency (nush) will in turn generate a healthy culture of trust, professionalism, accountability and reponsibility.

9. Also, in communities who find it difficult for various reasons to have access to gold or silver as money, they can have a money system based on, or backed by, say rice or cooking oil or a basket of local commodities, at least for local exchange purposes, as well as set up a form of netting off mechanisms to settle balances of payments at the end of a trading period (especially between businesses trading with one another), hence even a small amount of gold or silver or rice or oil can support a large volume of exchange.

10. Also, we have to bear in mind that money in Islam must have intrinsic physical value, and this intrinsic physical (‘ayni) value is independent of whatever extrinsic purchasing value/power it may acquire in the marketplace; hence absolute physical value is independent of relative market value. More on this and related issues will be elaborated, in sha Allah, in a paper (tentatively entitled, “The Concept of Money in Islam”) defining the Islamic view on the meaning of the terms ‘medium of exchange’,‘store of value’ and ‘measure of value’ that figure in the modern standard and also classical definitions of money.

11. Finally, the dinar and dirham is only a small though vital component of the total ecosystem of Islamic exchange called mu‘amalah, hence every community should institute regular teaching and training programs in all aspects of mu‘amalah that have been laid out so clearly in the classical texts on the adab and fiqh of mu‘amalah, iktisab and infaq in all the four madhhabs or schools of Islamic Law. 

WaLlāhu aʿlamu bi mā yuṣību al-ḥaqqa wa al-ḥaqīqah.

Thank you. Feed back welcomed. Wassalam.

1. Paper specially prepared for the One-Day Intensive Course on “The Adab & Fiqh of the Islamic Market,” organised by UNRIBA and CASIS, Kuala Lumpur, Malaysia, October 24 2014.

2. Associate professor, CASIS-UTM, Kuala Lumpur, Malaysia.

3. eg., in the case of the Shafi‘i school of Islamic Law, see Nuh Ha Mim Keller, Reliance of the Traveller, p. 873 ff for more details.