The Golden Dream of Islamic currency
"Ants have no (or little) problems with food and shelter. Ditto with birds and nearly every other species. Humans are bogged down by anxieties over food and shelter. With minds, shouldn't humans be thousands of times ahead, not trailing fractions behind ants?"
This quote from Bala Pillai sparked an interesting train of thought. My reply to it argues that we may well be behind the ants and birds in caring for our own food and shelter, because of our particular brand of "economics", which really is geared to enrich a few at the expense of many.
Comes along another stimulus: Islamic gold dinars and silver dirhams are promoted as a solution to our economic woes in an article by Boudewijn Wegerif, a Swedish monetary economist. While the Islamic sect called Murabitun is spearheading the movement to bring the bimetallic dinar and dirham back into play as the "world currency for all free people", their reasoning does not go all the way.
Gold and silver are the very reason banks could introduce and develop their debt-economy scheme which is ruining our prospects for progress by chaining us to worries over basic needs - food and shelter.
Here is the discussion for those interested in economic matters...
By the way, after writing the article I went out and made some photos of the surroundings. Here's the sunset we enjoyed. Terceira, Azores, 17 August 03:
At 13:28 +0100 11-08-2003, Robin Good wrote:
Dear Sepp, Chris,
"Ants have no (or little) problems with food and shelter. Ditto with birds and nearly every other species. Humans are bogged down by anxieties over food and shelter. With minds, shouldn't humans be thousands of times ahead, not trailing fractions behind ants?"
If your brain is working fine you should have immediate response and reference support facts and authors to shed some light and food for thought by those too easily inebriated by the apparent self-serving optimism of the above statement.
My response to Robin:
Thank you for a stimulating question. As Chris says we don't really take the viewpoint of other species, sometimes because of a conceited attitude - we think we are much better than them. I would add that we also don't care much for their problems, and thus are not good observers, although we probably could learn a few things if we only looked.
I believe it is correct to say that humans are bogged down by anxieties over food and shelter and indeed, having a mind that can identify problems and arrive at solutions, we should be doing much better than we are. But sometimes the mind works also in reverse. Someone smarter than us thinks up a solution that is good for that someone but leaves everyone else out in the cold.
In my view, we humans are anxious over food and shelter, not because there is a real physical problem but because we have chosen to adopt an economic system that caters to the enrichment and empowerment of a comparatively few, while the rest of us are living a life of artificial scarcity. Such a system is completely unknown in the animal kingdom and if introduced, it could well wipe out a species in short order.
Only because of our mind - our inventiveness - have we not yet succumbed to the economic constraints that we believe are an inevitable part of our daily lives. Apparently our type of economy has been inherited from ancient times. From the Sumerians up through history, the idea that "money" must have a value of its own, has been with us quite constantly, with only brief respites here and there.
Economy is the exchange of goods and services. Production and consumption are the end points that are brought to meet by that exchange. As long as the consumer can produce what he/she needs, there is little or no use for exchange, but life would be limited to an extremely primitive condition, not something we would want to even contemplate. So exchange, and therefore some kind of economic system are things we cannot do without.
What is needed for exchange to work is some kind of accounting system. No problem today with computers ready to take the drudgery out of counting, but historically, some physical means - beads, shells, iron bars, copper disks, all manner of "useless" little items have been used to serve the purpose of keeping track of who gave something and therefore should be having a "credit" to receive.
Trouble started when we were sold the idea that the counters must have an intrinsic value, such as silver, gold or other rare merchandise. By this conjuring trick, control over all economic activity and even over governments fell into the hands of those who retained the "valuable" currency in safekeeping. Gold and silver being relatively heavy to lug around, their place was soon taken by receipts of paper, the "bank notes".
The connection of money (bank notes) to precious metals perpetuated a mythical scarcity of the means of exchange. What's more, the banks issuing these "notes", convinced us we were expected to "pay them back", in other words we immediately entered a debt towards the banks every time we wanted to engage in economic activity. We also consented to pay for the privilege of using those notes. That fee we pay for our privilege is called interest. In its extreme form - usury - it was identified as an immoral and detrimental.
Unfortunately, prohibition of interest/usury could not be effective, although just about every major religion condemned the practice. The underlying condition - the intrinsic scarcity of the means of exchange - was never clearly identified and thus continued to be an effective control mechanism. The debt money system and accompanying interest has kept us chained to an insane belief: that we owe our money to someone and that whoever supplies it to us has every right to own us in return.
An efficient system of economic exchange which would not only allow us to catch up with the ants on food and shelter but bring unprecedented economic development and support great personal creativity, would have to work without scarsity and without a debt/interest mechanism.
Proposals in this direction have been made by Silvio Gesell in his work "The Natural Economic Order" and the principle of debt free money has found practical application in LETS (Local Exchange Trading Systems). The officially sanctioned economic control system however has withstood such isolated attempts at challenging its basic premises and has continued to accumulate monetary value and political power in the hands of a few. Time for change?
In reply to this, Robin sent a mindecos newsgroup digest with the following recommendation:
I think it would be worthwhile that you bring in some light and clarification about this appaently alternative and ideal monetary/bank systems that are promoted as being interests- and usury-free.
Here is the more interesting part of that discussion, with an article on Islamic currency
Date: Thu, 14 Aug 2003
From: "Kevin Russell"
Subject: finance globalism, debt slavery, and national bankruptcy that forfeits sovereignty to the creditors
I've just rediscovered this (2001) file by Swedish Monetary Economist Boudewijn Wegerif, which I was reminded of when Andrius mentioned he was looking for "Islamic finanicial institutions" practices etc... a few months ago, then reading Bloom's: Reinventing Capatialism and now again reminded with the post of re: Shoshana Zuboff And James Maxmin: the Support Economy.
Islamic "World Currency for Free People"
-- May 2001 --
I hope you find the .. following article interesting. A slightly abridged version has been translated into Swedish for the next issue of PENGAR (Money), the quarterly journal of monetary reform, of which I am consulting editor. PENGAR is sponsored by the members' owned, interest-free bank JAK, which you may be interested to learn more about, through the English section at www.jak.se.
Please feel free to post the article to others -- note though that I would appreciate knowing where the article has been placed and the lists to which it has been posted.
Monetary Studies Programme
150 21 Molnbo, Sweden.
ISLAMIC DINARS AND DIRHAMS
"A World Currency for Free People"
Boudewijn Wegerif -- May 2001
"A time is certainly coming over mankind in which there will be nothing left that will be of use save a dinar and a dirham" - Ascribed to the prophet Mohammed, as reported by Abu Bakr ibn Abi Maryam and quoted at www.islamicmint.com.
From the beginning of Islam until 1924, with the break-up of the Near Eastern Ottoman Empire and fall of the Khalifate, the basic currency of the Muslims was the gold dinar and silver dirham. Islam was then made subject to western banking practice, with its different paper currencies. However, now Muslims around the world are being encouraged to convert their paper currencies into new 100 percent Islamic gold dinars and silver dirhams. They are also being encouraged to join the 100 percent gold backed e-dinar service, which is linked to e-gold.
The new Islamic dinar and dirham represent the renewal of coins that go back to the beginning of Islam. The weights of the coins (4.3 and 3 grams) and their role in the economy was set by the Shari'a - i.e. the Islamic Law.
A small Islamic sect called Murabitun is spearheading the movement to bring the bimetallic dinar and dirham back into play as the "world currency for all free people".
At www.murabitun.org one may read how in the 12th century the Murabitun were the most feared warriors of a flourishing Islamic Civilisation. They swept North into Southern Spain from West Africa in a devastating wave of conquest and destruction of the feeble and corrupt petty kingdoms of the day. An economically just and socially glorious period of Islam is said to have been engendered in the wake of the fighting.
Now Murabitun is alight again, say the authors of this history.
From his home in Scotland, the Murabitun leader, Shaykh Abdalqadir as-Sufi, travels the world with the basic Murabitun message that Allah and His Messenger have declared war on usury. The renewed Islamic order will come about "not through fighting in the streets against the world's guns" but through taking effective advantage of "the continuing collapse of the paper-money edifice now sinking under mathematical lunacy and inflation."
Perhaps the most telling point in favour of the new gold and silver currency is that it meets the Islamic zakat requirement by which Muslims must give at least 2 percent of their income to the poor in tangible merchandise or "honest money of actual substance", therefore not paper money.
"If the millions of Muslims who now make their payment of zakat in paper money would do it in newly minted dinars and dirhams, they will put in circulation millions of gold and silver coins into the mainstream of daily commercial activities of our communities," is written at www.islamicmint.com. "That single act will become the most important political act of the century, opening the path towards the establishment of our own halal (usury) free currency breaking away from the usurious financial system".
WORLD WITHOUT BANKS
The political leader of Murabitun, Umar Ibrahim Vadillo, has a vision of a world without banks. In "The judgement on Riba", an essay on the Islamic Banking Fallacy he dismisses the Islamic banking system as profoundly contrary to Islam.
Three reasons are given why the Islamic bank is "a totally crypto-usurious institution", which "must be rejected and fought".
1. The use of credit to artificially expand the monetary resources is emphatically forbidden in the Shari'a (Islamic Law).
2. The Islamic principle of co-ownership, enshrined in the Shari'a, is usurped by the nature of the limited liability ownership of the banks and the enterprises they support.
3. In terms of the Islamic Law forbidding usury, a loan cannot be made of a commodity whose value is changeable, yet in banking everywhere fluctuation in value is generated and this affects the individual transactions the bank makes.
Umar Ibrahim Vadillo concludes: "There is no way of establishing an equitable market without going outside of the modem monetary and financial systems."
So long as the money supply is entrusted to a bank-supported government one must be ready to live with an artificial currency, which can be expanded and contracted at will, always according to the policies and economical suitability of the moment.
The Islamic bimetallic currency, on the other hand, is a natural currency that does not need rules or regulation, laws or official control.
FREEDOM AND STABILITY
According to a Murabitun "White Paper" document, a genuinely Islamic currency "only needs the individual freedom to possess and use gold and silver coins with an implicit elimination of all taxes imposed on their use. There is no doubt that the freedom to possess gold does not only mean the freedom to buy it and sell it for industrial purposes but also the freedom to use it as a medium of exchange."
Then, as commodities amongst other commodities, the value of gold and silver will naturally remain stable in relation to basic consumable goods. It seems that the value attached to gold and silver exchanges in a genuinely free market have a remarkable consistency over time.
Thus, according to a statement at www.islamicmint.com, "a chicken at the time of the Prophet, salla'llahu alaihi wa sallam, cost one dirham; today, 1,400 years later, a chicken costs approximately one dirham. In 1,400 years inflation is zero. Could we say the same about the dollar or any other paper currency in the last 25 years?"
The portability and anonymity of gold are also cited in the Murabitun literature as important, but their bottom line argument in favour of gold is that it is an asset that is no-one else's liability. "All forms of paper assets - bonds, shares, and even bank deposits - are promises to repay money borrowed. Their value is dependent upon the investor's belief that the promise will be fulfilled. A piece of gold is independent of the financial system, and its worth is underwritten by 5,000 years of human experience."
With the adoption of a bimetallic gold and silver currency, Umar Ibrahim Vadillo anticipates the re-emergence of the once flourishing world of Islamic trading, which "does not involve any form of interest-debt, control of products by speculative future and stock markets, or the mediation of any bank".
The trading renewal will be founded on the restoration of two of Islam's most representative but lost institutions, "the marketplace, which will replace supermarkets, and, the caravans, which will replace monopolistic distribution." There is also a call for a return to the guilds of "independent, intelligent work teams, in which the relationship master/apprentice will replace employer/employee."
By tradition, the Islamic Market was once placed alongside the Mosque as a "space freely accessible to everybody, with no divisions (such as shops) and where no taxes, levies or rents could be paid". And, as in a Mosque, whoever got to a market place first had a right to it until he got up and went back to his house or finished selling.
The same flexibility/fluidity, for a free flow of trade, is associated with caravans. "The caravan brought more than merchandise from one market to another, they brought the whole city that they represented."
NO FIGURES GIVEN
There is no clear record of how effective Murabitun has been in introducing the gold dinar and linked trading model to Islam. In 1998 the gold market analyst Jay Taylor wrote that the Islamic dinar was being privately used in more than 22 countries and being minted in four countries, including South Africa.
According to the Murabitun's own undated "White Paper", "Dinars and dirhams have already been minted under the supervision and standards of the World Islamic Trading Organisation and are in circulation in Spain, Germany and South Africa, soon to be followed by Switzerland, England and other Muslim countries".
And at www.geocities.com/Athens/Delphi/6588/mundial (link no longer active), 14 countries are listed as having Murabitun groups with their own websites, namely South Africa, North America, Malaysia, Germany, Nigeria, England, Turkey, Spain, Australia, France, Mexico, Switzerland, Bermuda and Denmark.
Although no figures are given, I suspect that the majority of the 4,000 or so new account holders at e-gold every week may be Muslims using the e-dinar service, which operates through e-gold. In 1999 there was a major promotion for the gold dinar in Dubai and at the e-gold website it is stated that more than half the gold backing for the e-gold payments service is in 400-ounce Dubai gold bars.
In the promotion of the e-dinar the point is well made that the greatest obstacle to gold and silver coinage, namely divisibility, is overcome by this system of payments: "Since ancient Babylonian times, paying for a pizza with gold coins has been impractical. All physical coins come in fixed sizes. There is a limit as to how small a coin can be. e-dinar, in contrast, is computerized; precise to 0.000001 oz (troy)".
There is irony in the thought that a return to traditional Islamic trading may be dependent on the Internet invention of 'infidels' - unbelievers. Perhaps too much irony.
This article provides interesting food for thought. My reply to Robin points out some important limitations of metal-based currency and suggests an alternative for achieving a stable currency available in any amount an economy could need:
Islamic banking, and especially the proposal of the Murabitun to base the economy on a gold and silver currency, together with an internet-based e-gold payment system, is providing many interesting pointers towards a better economy.
It seems that widespread agreement is already forming that our current economy based on debt is a profoundly unjust system of interaction between people. Money, the generally acceptable means of exchange, is furnished from the outside - it is generally "produced" by the banks and is released with the understanding that eventually, it has to be returned. In addition to returning all of the money that is provided, any debtor is also expected to "pay interest" for the privilege of using the needed means of exchange.
A real bonanza for the money masters, and an impossible task for the economy as a whole, because in order to pay the interest, NEW money will have to be borrowed, perpetuating the spiral and putting everyone in debt to the bankers - the makers of money. This forms a vicious circle that can never be broken, as long as we accept that the only "legal" means of exchange is furnished by a monopoly. The dilemma is perfectly described in a story by Louis Even (Money Myth exploded) of shipwrecks who find themselves isolated from the rest of the world and who put one of them - a banker - in charge of supplying them with money for their island economy.
Boudewijn Wegerif's article, Islamic "World Currency for Free People", gives us a good idea of how much this problem of banking and interest has been historically felt to be a grave problem. In fact, the political leader of the Murabitun, Umar Ibrahim Vadillo, who condemns any banking system, even the Islamic variety of "interest free" banking, is quoted as saying "There is no way of establishing an equitable market without going outside of the modem monetary and financial systems."
However, while the principles expressed by the Murabitun are sound - free trade and debt free money - I find that even the proponents of Islamic currency do not go far enough back in history when they advocate basing their economy on gold and silver.
Any economy needs an accounting system for the exchange of goods and services, valuable commodities that change hands. Money plays the mediator role, facilitating a system whereby we keep track of the value of economic exchanges between buyers and sellers. But when money itself becomes a valuable commodity, it ceases to function well as a medium of exchange. There may be fluctuations in the "price of money", and competition between the goods to be exchanged and the monetary medium leads to economic distortions.
Gold and silver not only are valuable commodities in their own right, they are also a finite resource. Spaceship Earth only has so much of these precious metals in its bowels, and the supply of "new money" depends entirely on the mining and minting of these precious metals or on their conversion from non-monetary to monetary use.
Much of the economic misery of "the dark ages" was due to the constraining factor of scarse availability of whatever metal was chosen as the monetary commodity. So when the Morabitun advocate to base the "World Currency for Free People" on gold and silver, they are, either unknowingly or by design, leading us into a blind alley.
Money must be stable, the Murabitun are right about that. It should not change with time in relation to the goods it buys, but monitoring monetary stability is no problem. A "shopping basket" of typical goods and services will do an admirable job of showing whether money is worth more, less, or the same as last month.
Physically, the stability of money depends on extant supply multiplied by the velocity of circulation, let's call that M x V, where M is the total monetary Mass and V the velocity of curculation. When the product of M x V is greater than the total value of tradable goods and services, prices "inflate", we pay more money for the contents of the same shopping basket. Conversely, when M x V turns out to be insufficient to mediate the buying and selling of what's on offer, prices "deflate". In both cases, the economy is adversely affected.
It should be understood that out of the total of money in circulation in any given country, only about 3 to 5 per cent is actual "cash", that is, bank notes and coins. The rest is made up of freely floating electrons in the banks' computers. An interesting question is who owns the electrons, that is, who created them. In our current system of banking monopolies, the electrons are entirely created by dedicated commercial companies. Money in the form of electrons is created by banks when they "give credit". There is a certain turnover, as some of these electrons are retired when credit is paid back, but new money creation is always superior to credit retirement - interest on the debt must be paid in addition to paying back the principal. The money we use to pay interest has to have been borrowed by ourselves or someone else - it had to be brought into existence before we could "give it" to the bank. So our necessity for economic interaction always leaves us with the short end of the stick.
In a just economic order, money would not be issued by the commercial banks. It would be created by and for the people, in other words, it would be property of the people who economically interact, not of banks or the state. It also would not be made of or backed by any valuable commodity such as precious metals. This last point is important because a linkage of money to any potentially scarce resource would reveal itself a bottleneck for future economic growth. This becomes obvious when we consider what Buckminster Fuller said in "Operating Manual for Spaceship Earth:
At present there is about seventy billion dollars of mined gold known to exist on board our Spaceship Earth. A little more than half of it - about forty billion - is classified as being "monetary"; that is, it exists in the forms of various national coinages or in the form of officially banked gold bullion bars. The remaining thirty billion is in private metallic hordes, jewelry, gold teeth, etc.
Since banks have no money of their own and only our deposits on which they earn "interest," bank wealth or money consists only of accrued bank income. Income represents an average return of 5 per cent on capital invested. We may assume therefore from an estimate of the world’s annual gross product that the capital assets, in the form of industrial production, on board our Spaceship Earth are at present worth in excess of a quadrillion dollars. The world’s total of seventy billion dollars in gold represents only three one-thousandths of I per cent of the value of the world’s organized industrial production resources. The gold supply is so negligible as to make it pure voodoo to attempt to valve the world’s economic evolution traffic through the gold-sized needle’s "eye."
Even if we took into account that both gold and silver might be used for monetary purposes, as proposed by the Murabitun, extending the availability of our monetary resource, still the situation remains exactly the same. At one point in the future, we would run out of steam.
THE MECHANISM OF STABILITY
Now that we found out why we should not link money to gold or other precious metals, what would be a workable mechanism to keep our future currency stable as a rock?
We would have to assiduously use our "shopping basket" which we would strive to keep completely transparent, to make sure we get reliable early intelligence on any minute trend of price changes. Then we would increase or decrease the total monetary supply to counteract any trend for change. The result: A stable equilibrium for our currency, without the need for precious metals.
What we now need is an accelerator and break pedal. Accelerator to "inject" money, break to throttle down the flow.
Increasing the total amount of currency would be no problem. We simply "give out" more money. As we create the electrons or pieces of paper representing our money, we distribute them equally to all participants in the economy. One for one, kids, workers, the rich, the poor. It makes no difference, every person receives an equal amount. All of us are contributing to "the economy", some by producing and selling, all of us by consuming, some by working, some by keeping house. So it would only be just that everyone share in the benefits.
Retiring money from circulation will be a bit more tricky, but we can fall back on a mechanism proposed by Silvio Gesell in his "Natural Economic Order". Our money shall be configured to lose, with time, some of its value - about 5 per cent a year or less than half of one per cent a month. No problem for the electrons, software will take care of that. Circulating cash is a bit more tricky, but a variety of mechanisms for dating and correspondingly adjusting the value of the physical cash we use in daily transactions have been proposed. so this should not present unsurmountable hurdles.
With this time-devaluation mechanism, we now have a robust throttle that will allow us to decrease the available "money mass" in any measure we may need, to guarantee stability. But even more importantly, the fee of 5 per cent a year on all extant money will fill up the big common pot out of which we can spend for public works, infrastructure and government. In other words, this apparently modest fee could take the place of today's taxes - especially if we decided to save some big bucks on government and its related bueraucratic apparatus.
I know, I know, I must be dreaming, but before getting back into the real world, I wanted to outline this fairly complex question in some detail, not only because the golden-dream Islamic currency proposal is an interesting challenge to wrap our minds around - I actually think that unless anyone interested, woman, man or kid, can grasp these fundamental economic issues at least to some degree, we have no chance in hell to change anything. Leaving it to the so-called economic experts has already got us in a fine pickle and won't do any longer. The first step to bringing about change is to understand fully what we're dealing with.
Of course when we eventually do all wake up, we must figure out how to take personal and collective control of our destiny, before we can even think of saying good bye to the banking monopoly. We'll need to reform the political decision making process so the good ideas have a chance of making it against the competition of vested economic interests which control government today. It's roll-up-our-sleeves-and-do-it-ourselves time. No delegating someone else to "vote for us" for five years at a time. Got to participate personally in the decision making process - all of us.
Does that make any sense?
p.s. the other article in the mindecos digest (regarding the support economy) is merely an attempt to overcome some of the more obvious symptoms of economic malady but does not touch on the basic mechanisms which I believe must be confronted and sorted out to make economic life bearable for all.
posted by Sepp Hasslberger on Sunday August 17 2003
updated on Friday December 10 2010
URL of this article:
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