Seigniorage of Fiat Money and the Maqāsid al-Sharī’ah:
The Unattainableness of the Maqāsid
"The history of money in Islam started with the use of the Roman Byzantine gold
coins, i.e. denarius or known as the dinar among the Arabs and the Persian silver coins,
i.e drachma or known as the dirham. The Arabs did not mint their own coin during the
times the Holy Prophet Muhammad (peace be upon him) preached the message of Islam.
The Prophet (peace be upon him) brought about sweeping social transformations and
changes that included business matters, but nonetheless, the Prophet (peace be upon him)
accepted the Roman denarius and the Persian drachma as the monetary units for
Muslims, i.e. as the Sharī’ah money2. Prominent Muslim scholars of the past, like al-
Ghazzāli, Ibn Taymiyyah, Qudama Ibn Jaafar, Ibn Khaldūn and al-Maqrīzī have asserted
that Allah SWT had created the two metals, gold and silver, as a medium of exchange
and a measure for all things3. Gold played the role of money throughout the Muslim
history albeit some ‘hiccups’ with the copper fulūs4 and with fiat money towards the end
era of the Ottoman caliphate. Nonetheless, gold continued to be part of the international
monetary system in one way or another until the breakdown of Bretton Woods in 1971.
Today all national currencies are fiat5, whereby it is neither backed by nor redeemable for
gold, i.e. without any intrinsic value.
Thirty years of global fiat monetary system has now brought the world to a unique
position. Many countries have faced monetary crises concurrently in this short period
and even a dollar crisis seems imminent6. It has been highly inflationary, with ever
widening disparity in the distribution of income and wealth; and has witnessed numerous
global economic crises and social misery. This paper argues why fiat money is
importantly at the root of all those problems. It also argues why the creation of fiat
money is truly a profound and devastating riba, and importantly why it is impossible to
achieve the objectives or maqāsid al-Sharī’ah in an interest-based fiat monetary systemadditional purchasing power10 to A, obtained without assuming any risk11. This
additional ‘free’ purchasing power is riba. Note that in this case the riba is materialized
only after one year when B pays back $1,100 to A. Nevertheless, a fact that often goes
unnoticed is the fact that creation of fiat money indeed enthrones the creator with
immediate purchasing power without assuming any risk! Today most money is nothing
but electronic records that provide millions and billions of purchasing power to the first
users of this electronic money12. Wouldn’t this then constitute a greater riba?
With this in background, the next section discusses the maqāsid al-Sharī’ah and
the socio-economic effects of fiat money, and thereafter reasons why it is impossible to
attain the maqāsid al- Sharī’ah in a fiat monetary environment."
Sambungannya....
"The global monetary system, undoubtedly, has gone though tremendous evolution
- from the use of primitive monies like cowry shells, salt and leather, to precious metals
like gold and silver, to fiat money like paper currencies and electronic money. After
Bretton Woods, the world has been under a floating exchange rate system with non of the
international currencies being backed by gold. History has shown that the kind and the
characteristics of money define the nature and characteristics of relationships that exist in
the economy that affect socio-economic factors7. Today, peoples’ life has been reduced
to a life of materialism, characterized by constant pursuit of wealth, competition, lack of
compassion, poverty, falling traditional values, crime, less time for family and leisure etc.
Needless to say, riba is strongly condemned in Islam; and riba has a lot to do with
the monetary system. Why Islam places so much emphasis on abstinence from riba? 8
This paper intends to show the devastating effects of riba on socio-economic factors.
Importantly, it argues why, the creation of fiat money itself, to be precise, its seigniorage,
is profound riba9, that indeed negates the attainment of maqāsid al-Sharī’ah, which in
turn prevents the real-life implementation of Sharī’ah, including the establishment of
Islamic economics, banking and finance.
Muslim scholars have defined riba well and hence we do not intend to repeat it
here. Nonetheless, the nature of riba – its new shapes and dimensions in current times -
is pertinent to our discussion. One feature of riba is where extra purchasing power is
created without taking on any risk. So when A lends out, say $1,000 to B at 10 percent
interest per annum, for example, the extra $100 that B has to pay as interest provides"
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