10: Origins of Money: Insufficient Gold

There is a controversy among Muslim economists regarding the sharia permissibility of token money, currently in use globally for many decades. Some believe that the sharia mandates gold/silver as currency, Our stance on this issue is complex. First, it is clear that token money has been permitted and used from the earliest times of Islam. However, more importantly, token money is ESSENTIAL to the functioning of a market economy - where markets are central to feeding the people. An ideal Islamic society is NOT a market economy in this sense. This is because social responsibility ensures that everyone will be fed, regardless of whether or not they have money -- We are collectively responsible to ensure that basic needs of all members of society are fulfilled. This is not true in a market economy. People without money will starve to death - this is a necessary condition for the functioning of a market economy, and this is what makes money central to a market economy. So to summarize a complex position on money:

1. In a social economy, everyone is connected via social relationships to others. This ensures that everyone's basic needs are met via social networks, even if people have zero money. In such an economy, it does not matter whether we use token money or gold. Money is only needed for supplementation, since basic needs are ensured by social relationships.

2. In a market economy, people must purchase basic needs from market. If they do not have enough money to buy food, they will starve. In such economies, the quantity of gold is usually not matched to the needs of the economy. Thus use of gold money will lead to starvation through unemployment. Token money is required because it can be varied flexibly to meet the needs of the economy

In conclusion, those who are convinced that money must be gold/silver must ensure that the society fulfills the Islamic requirements of strong social cohesiveness. Hadeeth says that Muslims are like one body - if one part suffers injury than the whole body suffers. FIRST we must build such a society, then it is possible to switch to gold for money. If we attempt to use gold as money in modern market societies without creating social cohesiveness, then we will cause great economic miseries for most of the people. The lecture below explains this in greater detail.

Slides for this lecture are available from http://bit.ly/SSgold 

ZOOM Lecture is given below

Here is a quote from the document above:

CHAPTER EIGHT: THE PREFERRED VIEW ON THE REALITY OF PAPER MONEY

Paper money has no intrinsic value, but has an extrinsic value that is based on the following factors, amongst others:

1. The economic situation of the state.

2. Public confidence in paper money as a trustworthy store of value and in its unrestricted buying power.

3. State enforcement of paper money as legal tender.

The preferred view is:

Paper money is an independent type of money (thaman), similar to gold, silver and other mineral money. Paper currencies from different issuing authorities are different types of money.

An Urdu Thesis on this matter of money is also attached below. It also comes to similar conclusion regarding the validity of paper money.

The above is the argument from the Shari'ah perspective. It is clear that, at least according to some fuqaha, paper money is permissible. Next consider the argument from economics. Consider a simple case, where all gold/silver has been used up in the country, and there is none available for use as currency. This is close to the current situation in Afghanistan, and also happened to Germany, and many other countries, at end of WW1 and WW2. Should a Muslim ruler allows the country to starve to death, since paper currency is not permissible, or should he issue paper money backed purely be state law - this money is legal tender for all transactions - WITHOUT any gold/silver backing? The economics clearly shows that we must use paper money,  A more complex argument is given in the following link:

https://azprojects.wordpress.com/2023/06/12/token-money-required-for-growing-economy/