Islamic Gold Dinar

In the beginning the Muslims used gold and silver by weight and the dinar and dirhams that they used were made by the Persians.

The first dated coins that can be assigned to the Muslims are copies of silver dirhams of the Sassanian Yezdigird III, struck during the Khalifate of Uthman, radiy'allahu anhu. These coins differ from the original ones in that an Arabic inscription is found in the obverse margins, normally reading "in the Name of Allah". Since then the writing in Arabic of the Name of Allah and parts of Qur'an on the coins became a custom in all mintings made by Muslims.

Under what was known as the coin standard of the Khalif Umar Ibn al-Khattab, the weight of 10 dirhams was equivalent to 7 dinars (mithqals)In the year 75 (695 CE) the Khalifah Abdalmalik ordered Al-Hajjaj to mint the first dirhams, thus he established officially the standard of Umar Ibn al-Khattab. In the next year he ordered the dirhams to be minted in all the regions of the Dar al-Islam. He ordered that the coins be stamped with the sentence: "Allah is Unique, Allah is Eternal". He ordered the removal of human figures and animals from the coins and that they be replaced with letters.

This command was then carried on throughout all the history of Islam. The dinar and the dirham were both round, and the writing was stamped in concentric circles. Typically on one side it was written the "tahlil" and the "tahmid", that is, "la ilaha ill'Allah" and "alhamdulillah"; and on the other side was written the name of the Amir and the date. Later on it became common to introduce the blessings on the Prophet, salla'llahu alayhi wa sallam, and sometimes, ayats of the Qur'an.

Gold and silver coins remained official currency until the fall of the Khalifate. Since then, dozens of different paper currencies were made in each of the new postcolonial national states created from the dismemberment of Dar al-Islam.

Allah says in the Qur'an:

And amongst the People of the Book there are those who, if you were to entrust them with a treasure (qintar), he would return it to you. And amongst them is he who, if you were to entrust him with a dinar would not return it to you, unless you kept standing over him. Qur'an (3,75)
Qadi Abu Bakr Ibn al-Arabi, the greatest authority on Qur'anic Law wrote in his famous "Ahkam al-Qur'an" about this ayat:

"The benefit that can be taken from this is the prohibition of entrusting the People of the Book with goods".

Qadi Abu Bakr said: "The question concerning entrusting property is legislated by the text of Qur'an." This means that the ayat is a legal judgement of absolute validity and of the greatest importance to the deen.

Entrusting wealth to non-Muslims is not allowed, but furthermore, taking a non-Muslim as a partner outside Dar al-Islam (where we stand over them) is extremely restricted, because they might cheat or might use our wealth in forbidden transactions.

Since paper-money is a promise of payment, can it be permitted to trust the issuers while they hold the payment (our property) outside our jurisdiction? History has also demonstrated repeatedly that paper money has been a permanent instrument of default and cheating the Muslims. In addition, Islamic Law does not permit the use of a promise of payment as a medium of exchange.

According to Islamic Law...

The Islamic Dinar is a specific weight of 22k gold (917.) equivalent to 4.25 grams.
The Islamic Dirham is a specific weight of pure silver equivalent to 3.0 grams.
Umar Ibn al-Khattab established the known standard relationship between them based on their weights: "7 dinars must be equivalent to 10 dirhams."

"The Revelation undertook to mention them and attached many judgements to them, for example zakat, marriage, and hudud, etc., therefore within the Revelation they have to have a reality and specific measure for assessment [of zakat, etc.] upon which its judgements may be based rather than on the non-shari'i [other coins].

Know that there is consensus [ijma] since the beginning of Islam and the age of the Companions and the Followers that the dirham of the shari'ah is that of which ten weigh seven mithqals [weight of the dinar] of gold. . . The weight of a mithqal of gold is seventy-two grains of barley, so that the dirham which is seven-tenths of it is fifty and two-fifths grains. All these measurements are firmly established by consensus." Ibn Khaldun, Al-Muqaddimah

How are the Islamic dinar used?

1.- The Islamic Dinar can be used to save because they are wealth in themselves.
2.- They are used to pay zakat and dowry as they are requisite within Islamic Law.
3.- They are used to buy and sell since they are a legitimate medium of exchange.

Gold and silver are the most stable currency the world has ever seen

From the beginning of Islam until today, the value of the Islamic bimetallic currency has remained surprisingly stable in relation to basic consumable goods:

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?
In the long term the bimetallic currency has proved to be the most stable currency the world has ever seen. It has survived, despite all the attempts by governments to transform it into a symbolic currency by imposing a nominal value different from its weight.

Reliability

Gold cannot be inflated by printing more of it; it cannot be devalued by government decree, and unlike paper currency it is an asset which does not depend upon anybody's promise to pay.
Portability and anonymity of gold are both important, but the most significant fact is that gold 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. As junk bonds and the Mexican peso have illustrated, a questionable promise soon loses value.

Gold is not like this. A piece of gold is independent of the financial system, and its worth is underwritten by 5,000 years of human experience.

Paying Zakat with Dinar & Dirham

"Islam is based on five: testifying that there is no god but Allah and that Muhammad is the Messenger of Allah, establishing the prayer, paying the Zakat, the Hajj and the fast of Ramadan."

Zakat cannot be paid with a promise of payment. Zakat can only be paid with tangible merchandise, called in Arabic 'ain. It cannot be paid with a promise to pay or a debt, called in Arabic dayn.

From the beginning the zakat was paid with dinars and dirhams. Most significant is that the payment of zakat was never allowed in paper money during all the ottoman period right until the fall of the Khalifate.

Shaykh Muhammad Alish (1802-1881), the great Maliki Qadi, said that if you were to pay zakat with paper-money only its value as merchandise ('ayn), that is, its value as paper can be accepted. Therefore, its nominal value is irrelevant as payment of zakat.

"If the Zakat was obligatory by considering its substance as a merchandise, then the nisab would not be stipulated according to its value but according to its substance and its quantity, as is the case with silver, gold, grain or fruits. Since its substance [paper] is irrelevant [in value] in respect to the Zakat, then it should be treated as the copper, iron or other similar substances."

Fatwa of Shaykh Alish

Payment of Zakat is perfectly explained and regulated in the Islamic jurisprudence. For centuries when Islamic Law was enforced by a Caliph or an Amir, the Zakat was collected in gold and silver. When paper-money was being first introduced, during the last century by the colonial powers the traditional ulema rejected it as being opposed to Islamic Law. According to them paper money was to be treated as fulus or lower category of currency with limited used, basically just as small change. It is, for example, not allowed to make a qirad with fulus. Among those ulema, stands out the famous scholar of magrebi ascendance, Shaykh Muhammad Alish (1802-1881) who was the Shaykh of the Shaykhs of Maliki fiqh in the University of Al-Azhar in Egypt. He wrote in his Fatwa.

"What is your judgement in respect to the paper with the stamp of the Sultan that circulates like the dinars and the dirhams? Is it obligatory to pay Zakat as if it was a coin of gold or silver, or merchandise, or not?"

I responded exactly in the following way:

"Praise belongs to Allah and blessing and peace upon our Master Muhammad, the Messenger of Allah."

"Zakat is not to be paid for it, because Zakat is restricted to the flocks, certain type of grains and fruits, gold and silver, the value of rotational merchandise and the price of the goods withheld. What is referred previously does not belong to any of these categories."

You will find an explanation by comparison with the copper coin or fulus with the stamp of the Sultan which is in circulation and for which no Zakat is paid since it does not belong to any of the categories mentioned. It says in the "Mudawwana": "Those who posses fulus for over a year for a value of 200 dirhams does not need to pay Zakat unless is used as a rotational merchandise. Then, it should be treated as if it was a merchandise."

In the "At-Tiraz", after mentioning that Abu Hanifa and Ash-Shafi'i obliged to pay Zakat for the fulus, [is stated that] since both affirm that the payment of Zakat is from value, and considering that Shafi'i has two contradictory opinions about the subject, the opinion of the school is that there is no obligation to pay Zakat for the fulus since there is no discrepancies about the fact that what counts with respect to the fulus is not its weight or its quantity but only its given value. If the Zakat was obligatory by considering its substance as a merchandise, then the nisab would not be stipulated according to its value but according to its substance and its quantity, as is the case with silver, gold, grain or fruits. Since its substance [paper] is irrelevant [in value] in respect to the Zakat, then it should be treated as the copper, iron or other similar substances.And Allah, ta'ala, is the Wisest. And may Allah bless and give peace to our Master Muhammad and his family.

(Translated from the "Al-Fath Al-'Ali Al-Maliki" pp. 164-165).

This Fatwa considers paper-money to be fulus, because it only represents money and does not have value as merchandise. It follows that since Zakat cannot be paid in fulus, which has no value as merchandise, it cannot be paid in paper-money, which value as weight of paper is null. On this basis, it becomes clear the urgent need to restore the use of the Dinar and the Dirham as payment of Zakat. 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. That single act will became the most important political act of the century, opening the path towards the establishment our own halal free currency breaking away from the usurious financial system.

The return to the payment of zakat in gold and silver is an essential part of the reestablishment of Islam.

Islamic Gold Dinar In Malaysia

On the 20 September 2006, Kelantan became the first state to launch gold dinar coins. It features the Kelantanese state crest, the date of production, as well as the weight and purity of the gold used on its face. The Dinar Emas Kelantan (DEK) is similar to the original dinar in weight and purity of gold used. The coins can be bought and sold at the Kelantan Corporation Berhad (Perbadanan Kelantan Berhad) and all eight Ar-Rahn Islamic pawnshops in the state.

The Kelantanese dinar was first struck in 2006 by Mariwasa Kraftangan, a local producer of souvenirs and copies of objects of art and culture. The Government of the Malaysian state of Kelantan attempted to give the dinar a legal tender status, but this was vetoed by the federal Malaysian government in Kuala Lumpur. The dinar has now been privately issued, albeit without a legal tender status. The only currency that is legal tender in Kelantan is the Malaysian ringgit. According to the Malaysian constitution, ninth schedule, list I sub 7.a the states of Malaysia do not have the right to issue coins.

The coins have a metallic composition of 22 carat gold. There are 3 denominations - 1/4,1/2, and 1 dinar.

In Malaysia, under the IGD Practice Sdn. Bhd., they established wakala (Islamic banking agencies) in a few states in Malaysia.

Common uses of the gold dinar include:

1. Saving them, because they are wealth in themselves.
2. Paying zakat and dowry as established within Islamic Law.
   Buying merchandise from outlets.
3. Holding accounts, and making and receiving payments as with any other medium of exchange.
   

The IGD Exchange Payment System

IGD Exchange is the name of a worldwide internet base electronic payment and exchange system that uses the Islamic gold dinar and dirham in correspondence with Islamic banking agencies.The primary use of the Islamic Dinar and Dirham is as a buffer instrument for international trading, namely Bpa and Mpa.IGD Exchange transaction are executed directly between the two parties involved without requiring third-party intermediaries.

Why the term”Gold Dinar” instead of “Islamic Dinar”?In recent literature on this subject, The term Islamic Dinar and the term Gold Dinar have been used interchangeably. The term Islamic Dinar, is, however, a unit of account of the Islamic Development Bank (IDB), where the value of one Islamic Dinar is equivalent to one SDR (SpecialDrawing Ringgit). It is, therefore, preferable, for the purpose of our discussion, to use the term Gold Dinar to distinguish it from the Islamic Dinar of the IDB. More importantly, the term Gold Dinar is a neutral term and, therefore, will facilitate the implementation of our proposal with non-OIC countries as well.What is the role of the Gold Dinar?The proposed Gold Dinar will not replace the domestic currencies.

The domestic currencies (e.g. Ringgit) will continue to be used for domestic transactions in the respective countries. The Gold Dinar will be used only forexternal trade among the participating countries.The Gold Dinar will not exist in physical form. It will merely be defined in terms of gold. For example, if one Islamic Dinar is equivalent to one ounce of gold, and the price of one ounce of gold is today at US $290, then the value of one Islamic Dinar will be US$290 or equivalent in other currencies, on the basis of the prevailing exchange rates.The actual settlement for trade can be by way of the transfer of equivalent amount of gold or the payment of an equivalent amount in US dollar, Euro, Yen or any other currency.

Where the transfer of gold is used, it will not be a physical transfer of gold from one country to another, but a transfer of beneficial ownership in the gold custodian’s account.How will the Gold Dinar be used?The Gold Dinar will be used initially, for settlement of trade with countries with whom Malaysia has already signed bilateral payment arrangements (BPAs).

Eventually the BPAs will be converted to a multilateral payments arrangement (MPA), with the participation of as many countries as possible. The following is an illustration of how these arrangements work:-

Bilateral Payment Arrangement (BPA)

• Two countries, say Malaysia and Saudi Arabia, sign a bilateral payments arrangement, under which trade balances will be settled every 3 months.

• The trade will be denominated in Gold Dinar.

• The value of one Gold Dinar is defined, say, as one ounce of gold.

• The Malaysian exporters will be paid in Ringgit by Bank Negara Malaysia on the due dates of exports, based at the Ringgit/Gold Dinar exchange rate prevailing at the time of the export. Bank Negara will then debit the Saudi Central Bank’s account. Similarly, the importers will pay BankNegara the Ringgit equivalent of their imports

.• The Saudi Central Bank will do the same for its exports and imports. Say, at the end of the 3 month’s cycle i.e. on March 31, the total exports from Malaysia to Saudi Arabia is 2 million Gold Dinar and the total exports of Saudi Arabia to Malaysia is 1.8 million Gold Dinar.

Therefore, for that particular 3 months cycle ending on March 31, the Saudi Central Bank will pay Bank Negara 0.2 million Gold Dinar. The actual payment can be by way of the Saudi Central Bank transferring 0.2 million ounce of gold in its custodian’s account, say, in the Bank of England in London, to Bank Negara’s account with the same custodian or can be in US dollar, Euro, Yen or any other currency based on the exchange rate against Gold Dinar on March 31.

The important point to note here is that, under this mechanism, a relatively small amount of 0.2 million Gold Dinar is able to support a total trade value of 3.8 million Gold Dinar. In other words, we optimise on the use of foreign exchange. Even countries that do not have a large amount of foreign exchange reserves can participate significantly in international trade under this mechanism.Multilateral Payment Arrangement (MPA)

• The MPA functions in a similar fashion as the BPA, but it involves many countries and is, therefore, more efficient than BPAs.

• To illustrate the efficiency of the MPA, lets assume that there are 3 countries involved, namely Malaysia, Saudi Arabia and Egypt.

• Let us assume that the volume of trade between Malaysia and Saudi Arabia was the same as in the example with BPA, and we add the additional trade of these two countries with Egypt, as follows:-

• In other words the only payment required is for Egypt to pay Saudi 0.1 million Gold Dinar, but the total value of trade among the 3 countries is 10.7 million Gold Dinar.

• It is also possible to refine the mechanism further, whereby the credit or debit outstanding at the end of each quarter can be forwarded to the subsequent quarters and final settlement is made only at the end of the year.The advantage of this refinement is that a net import position for a country during a particular quarter may be off-set by a net export position in the subsequent quarter, so that for the year as a whole, the payment flows are minimised. However, some countries could turn out to perpetual net importers, and the net import figure could balloon 5 up at the end of the year. To overcome this problem, a formula could be devised to cap the amount of debit position to be carried forward to the subsequent quarters. Any amount in excess of this limit will have to be settled at the end of the quarter itself.The advantages of using the Gold Dinar in promoting trade among OIC countries, in the context of BPAs and MPAs, is very obvious from the illustrations above.

Two issues remain to be answered:-

(i) Can the Gold Dinar serve the same purpose outside theBPAs and MPAs?

(ii) Can the BPAs and MPAs serve to promote trade amongdeveloping countries without the creation of the GoldDinar?It could be difficult, at least for the time being, for the Gold Dinar to be used effectively outside the BPA/MPA mechanism. Since the payment for trade denominated in Gold Dinar can be settled either by the transfer of gold or by payment of equivalent amount in US dollar, Euro, Yen or other currencies, it could be cumbersome, at least initially, to use the Gold Dinar on a daily basis to settle trade payments.On the issue of whether there is a need for the Gold Dinar, if the BPAs and MPA themselves could achieve the same objective, it is true that the BPA/MPA arrangements, on their own, are useful in promoting trade and in optimising the use of US dollar reserves for trade.

However, there would still be a demand for US dollar for the settlement of the net balances. Attempts to diversify the currency of settlement away from the US dollar to Euro or Yen has not been successful. More than 75% of the international trade is denominated and settled in US dollar. In the case of Malaysia, the figure is 85%.Under the proposed Gold Dinar model, while some of the settlement of the trade denominated in the Gold Dinar may still be in US dollar, there is a better prospect that the bulk of the settlement will be by way of transfer of gold or payment in Euro or Yen, given that the currency of denomination of trade is no longer the US$ but the Gold Dinar. At present there is no difference between the currency of denomination and the currency of settlement. Both are mainly in US dollar.

The question may be asked: Why is there a need to dilute the currency of settlement function of the US dollar? The naturaland inherent demand for US$, in the context of its function as virtually the solecurrency for the settlement of international trade, contributes to the instability of currency market during times of crises. It is also not wise for the entire international financial system to depend on the currency of one particular country.Vulnerability of external reservesIt may sound strange, but it is true that a favourable balance of payments is not necessarily favourable. This is due to the fact that, by definition, a favourable balance means that the country has exported or given away more in real goods and services than it has imported or received. The so-called surplus is represented by payment in foreign exchange, i.e. money held in some foreign country. In other words, the external reserves representing our national savings also represent a form of lending money to the countries in which the savings are deposited, whether in the form of bank balances or some other financial instruments.

By so lending, the developing countries have not only allowed the rich, developed, reserve currency countries to enjoy the fruits of our labour, talent, intellectual capital, natural resources, and sacrificed consumption – we have also provided the depository countries with the resources to finance the expansion of their own companies and the growth of their own economies. We welcome investments from abroad, with sometimes undue and abject gratitude, when, ironically, some, at least, of the foreign funds would have been recycled from our own savings.Let us not forget that the national savings of the developing countries provide a significant, even if not major portion, of the pool of funds which constitute the foundation of the international capital markets centered in the reserve currency countries.

The more we retain our savings in those reserve currency countries, the more we empower them to wield their financial muscle, often with arrogance and disrespect and insensitivity. Unfortunately, too, by providing them with some of the resources to finance the growth of their armaments industries and develop military equipment, we have also enabled them to flex their military muscle and to take unilateral actions with impunity.We need to be vigilantly aware that, when we accept payment from foreign buyers of our goods and services and then put the money back with their bankers, the foreigners as a whole would not have paid us anything. These indirect credits mean that they, as a group, could continue ad infinitum to take more real goods and services from us than we from them. We are effectively helping to maintain and even enhance their standard of living, while holding back on the standards of our developing countries.The developing countries must come together to help each other to grow and develop, by buying and selling more from each other and minimizing the use of the currencies of the developed countries for settlement of the intra developing country trade.

We should use our surpluses to finance each other. This is the ultimate objective of theGold Dinar proposal.It was an ominous portent of what could be, when the world saw how long queues were formed outside the banks in Argentina, because the authorities were compelled to restrict the withdrawal of funds from domestic banks by their customers. Those funds were the savings of their own citizens in their domestic currency!With the unilateral decision of some countries to freeze the bank accounts of alleged terrorists, including long-established charities, it is not inconceivable, however unlikely it might appear, that the official reserves of countries, which are deemed by the “host” country to be threatening or otherwise sufficiently undesirable, could also be blocked by such unilateral action. It is also notdifficult to imagine the harsh economic, political, and social repercussions of such denial of access to their hard-earned savings on the victimised countries. Victimised because there is no effective appeal to independent arbiters who can enforce remedies.

The severity of the consequences would render the saver countries vulnerable to blackmail and probably suppress the expression by these countries of any opinions critical of the depository countries. The supplier of funds would be at the mercy of the keeper-and-user of the funds! Recent history has shown that the unwritten rules of decorum, integrity, andhonour are now subservient to the self-extended “right of self-defence” of the high and mighty. Even treaties in black and white are being abrogated.Gold Dinar and Unity among OIC countriesWhile the Gold Dinar mechanism will apply to all developing countries, an important objective of the Gold Dinar proposal is also to bring about greater unity among the Islamic countries. The underlying basis of this greater sense of unity will be trade.

There is a famous Chinese saying that the journey of a thousand miles begins with a first single step. I do not want to exaggerate, but if we can succeed in increasing substantially the volume of trade among the OIC countries,the rest will follow. Trade could be the initial first step in the proverbial journey of a thousand miles.The scope for increasing trade among the OIC countries is tremendous, and should pose no problem for us, since Islam is closely related with trade. Islam was born in Mecca, which, at that time, was the centre of trade in the Arabian Peninsular. When Islam took root in the Arabian Peninsular, trade wasthe main vehicle for dakwah activities for the spread of Islam from Andalusia in Spain to the Cape of Good Hope in Africa and to the Malay Peninsular.

It is a fact that the volume of trade among Islamic countries, before the Western colonization began, was at a very healthy level.However, when the Islamic countries began to be colonized by the West, trade among Islamic countries began to deteriote. The colonized Islamic countries were ruled with the objective of supplying raw material to satisfy the needs of the Industrial Revolution that was taking place in the West at that time. Not much has changed since then, although the Islamic countries have now achieved independence.

The continued dependence of the Islamic countries on the West can be illustrated by the following:-

(i) The intra OIC trade is only 12% of the total trade of the OICcountries. In other words, the trade of the OIC countries with the non-OIC countries is 8 times the size of the intra-OIC trade.(ii) The total volume of the trade of OIC countries is only 7% of the total international trade, although 60% of the natural resources of the world are found in the OIC countries.

(iii) Lebanon and Turkey export butter to Belgium, the United Kingdom and some other European countries, while Iran, Pakistan and Syria import butter from Europe.(

iv) Egypt is a big export of textile, but Algeria, Indonesia and Iran purchase textile from Europe.

There are many other such examples. IF we can start to trade among ourselves, without using the Western countries as intermediaries, we can substantially increase the volume of such trade based and bring about greater prosperity among the OIC countries. This will create a virtuous cycle.

From trade to investment is only a short step. We can use the surplus ofthe richer OIC countries to assist by way of long-term loans in the building of infrastructure in the less developed OIC countries. Infrastructure, in term of roads, railways etc, as I see it, is a critical necessity for growth and development of a country.Effect on the WestThe growth and prosperity of developing countries, triggered by the greater volume of trade among themselves, need not be a disadvantage to the West. If the developing countries achieve prosperity and political stability, this will enable the West to sell more goods and invest more in these countries. The process I have described is not a zero sum game.

The gain for the OIC is not a loss for the West. It can be a gain for both. But, the new scenario will be one of the mutual respect, tolerance and dignity for all countries, compared to presentskewed relationship.Moving ForwardWe need to push this agenda of Gold Dinar forward. Perhaps one way is for Bank Negara Malaysia and Wisma Putra to discuss with the 29 countries with whom Malaysia has signed BPAs, with the objective of converting these conventional BPAs into Gold Dinar based BPAs.The next step would be to convert the individual BPAs into a single multilateral payment agreement (MPA). Subsequently, we will have to get as many countries as possible to join this MPA.