Decrypting Cryptocurrency – II
Money from an Islamic Perspective
(Shaykh Dr Sajid Umar, Standing Shariah Committee, Islamic Council of Europe (ICE), Interviewed by Usman Malik)
Continued from Decrypting Cryptocurrency – I: History of Money
U: What about the idea of Money from an Islamic Perspective?
S: When the Prophet (pbuh) was sent as a Messenger, the people of the region would conduct trade using the Roman gold coin known as the dinar, and the Persian silver coin known as the dirham. And at that time, these metals were used for exchange in accordance with their weight. Some sources highlight that for this period, 7 gold coins were equal to 10 silver coins in terms of value. This exchange rule was based on the amounts of each respected metal in weight that was present in those coins.
And accordingly, the Messenger (pbuh) tacitly approved peoples’ trade based on the currency of the time, and things remained like this. This was with the exception of a few framing rules in relation to the exchange of gold and silver, when riba became prohibited.
In terms of currency use, however, this practice continued until the time of Umar. For at his time, he minted a coin upon the style of the Roman dinar, but with a metal other than gold and silver. This was called the fals. Sometimes he wrote on these coins his name, and on others phrases like (Alhamdulillah), (Bismillah), and (Allah Rabb). As a footnote, we can see here how societies of old recognised the intrinsic nature of money to meet the needs of mankind, and how through money, ideas and identities can be shared. This is because it was the easiest way to get messages across on a mass scale to all of society because of its function in the lives of people. Today we use media!
But coming back to Umar, he introduced the fals, and in addition to this he considered making the leather of camels (camel skin) as a form of money. But he was advised against it, after he did shura, as he was told that if he went ahead with this, there was a real fear that camels would become scarce…
Then things remained like this after the introduction of the fals until the caliphate of Abd al-Malik b. Marwan. He was the 5th Umayyad Caliph, and came into power around 65 AH. During his time, he minted an Islamic gold and silver coin for the first time.
U: There is an interesting story which explains his reasoning for doing this. It is said that Abd al-Malik b. Marwan sent a letter to the Roman emperor mentioning the virtues of the Messenger of Allah (pbuh), along with some verses from the Qur’an, including Surah al-Ikhlas. This angered the emperor who responded with a letter saying that if these types of messages did not stop he would mint coins with insults against the Messenger of Allah (pbuh) on them.
So Abd al-Malik then commanded the Muslims to leave their coins and use the new Islamic ones.
S: Yes, Taqi al-Din al-Maqrizi, who is an 8th century Egyptian historian, mentions this story.
Now I might as well highlight this here, and it is related to the wider discussion regarding whether crypto-currencies can be a genuine currency…
This act by Abd al-Malik was seen from the perspective of Islamic fiqh as a paradigm shifter. This is insofar as we find for the first time a worldview among Islamic scholarship regarding money and its issuance, in the form of it being from the rights of the state! And perhaps we will discuss this more later, as it is connected to the view of the scholars who say crypto-currencies are haram.
So this is the summary of the history of money before the paper money phenomenon, and I think this is h good point in our discussion to summarise things:
So from the beginning of mankind and trade, we see that the idea of money surrounded having something that would be a means towards the achievement of something else, not an end in and of itself…
We see that its birth and evolution was based on what facilitated trade and fostered mankind’s ability to leverage off the strengths of each other in a better and more sustainable way…
And we learn that Allah Almighty left this matter to be formalised by mankind based on what they considered suitable, and as such we do not find a verse or hadith defining for us what money is.
Is there a difference between money and currency?
U: Shaykh, in your Feb 2018 community guidance on bitcoin on your website, you framed it in a way never done by anyone to my knowledge. You concluded that it was a ‘distorted currency’, and just now you spoke about the characteristics of ‘money’. Do you use the terms interchangeably? Or is there a difference between money and a currency?
S: Good question, to be honest it was not done intentionally. On a public level the two terms are used interchangeably.
However, from an economics perspective I suppose it would depend on what is actually being referred to. This is because in the past economists would refer to something called “good money” and “bad money”. Upon contemplation, this distinction arose as a reaction to currencies becoming unpegged from gold in 1971 during US President Nixon’s time in power. As economists put it, good money is gold, and bad money is fiat money (currency). This is because gold has intrinsic value.
Also, economists discuss the characteristics of money, and mention that it must be a standard of value and a store of it, a unit of exchange, divisible, durable, and portable. These enumerated factors are quite similar to what the fuqaha have discussed and mentioned. This is not strange, as both sides are highlighting characteristics of money based on observation, that is, how mankind developed and used money as an idea and what it sought to achieve…
But the point here is that economists were most likely describing ‘money in action’, and not money as an idea. This is because as a concept it would not need to be durable, portable, or physically divisible. Interestingly, economists have opined that from the viewpoint of their science, money is the store of value, whilst a currency allows that value – which money holds – to become tangibly realised. This is because on the exchange level buying and selling happens, and that is when the currency is exchanged.
Anyway, there was a bit of mental gymnastics there. Without sounding too philosophical, I hope that answers the question.
There is one point though that comes to mind, and it is connected to this discussion of money and currency at a policy level. This is as some policy makers have weighed into the discussion and said that money is something through which the liability of debt becomes dissolved. This means that if I owe you money and pay you back, the liability that was upon me towards you ceases to exist.
So from this perspective, and in accordance with this school of thought, currencies at a policy level would have to be something recognised by the state, which would then place money in the general realm and currencies in the specific realm. Money would ultimately entail currencies recognised by the state, as well as anything that people use as a unit of value and means of exchange, like gold and silver today, or crypto-money if deemed legal. Ultimately, currencies would only entail mediums of exchange recognised by the state.
U: So then we would have to say crypto-money and not cryptocurrency?
S: That is a possibility. But like we said, on a public level the terms are used interchangeably. And from a Shariah perspective, terminologies are not binding; what matters is the meaning.
To be continued at Decrypting Cryptocurrency – III
Reproduced with permission from A Master Class on Decrypting Cryptocurrency