Issue on The adoption of the Dinar and the Dirham in the Recent Era

The adoption of the dinar and the dirham is not binding on us. The followings are the basis of the argument:

a) There is no clear evidence from the Quran and Sunnah that the Muslim shall use and adopt the dirham in their transaction.

b)However, it is preferable to use the dinar and dirham as the gold and silver are the most stable currency since its emergence until the recent era.

c) Not only the paper money which is subject to the inflation, gold and dinar is also fluctuating. The simple example is that: a hundred grams of gold which has a purchasing power to buy a hundred square yards of land, it may happen that after 10 years the purchasing power of gold turns out to be only fifty yards.

d) The medium of exchange is not limited to gold or silver and the barter of commodity is not confined to specific articles such as gold, silver, etc, so paper money is possibly used as medium of exchange.

e) It is indispensable reality in this era to use paper money for our medium of exchange as every corner of the world atmosphere obliges us to be involved in using such instrument.

Zakat on Paper Money

In book of Al-Fiqhu Ala al-Mazahib al-Arba'ah, in case of paper money, the following different views of Islamic jurist are supposed to be noticed:

i. Hanafi School: banknotes –as in paper money- is considered as a substance upon which the payment of zakat is applied provided that it can be directly exchanged with gold or silver.

ii. Shafii School: also considered that money in the bank fall under the obligation of zakat.

iii. Same as Maliki School that the paper money if it can be exchanged with gold practically the payment of zakat is also obliged.

iv. Only Hambaly School who disagree the zakat is applied on paper money. Zakat is only on gold or silver.

The conclusion of these Muslim jurists is that the majority considers that if the paper money has a value and can be exchanged with gold or silver then zakat is applied.

It is not obligatory on the Muslim to use dinar and dirham for the payment of zakat as there is another medium of exchange and commonly used by the people in this world, that is paper money which has similar function to the payment of zakat. If it is applied to necessarily pay in dirham or dinar, the zakat of the people in this world will be invalid.

• The gold and silver is considered as medium of exchange which have a function to determine the value of other commodities. And that is why it is considered as money because they are easy medium of exchange and simple measure of value. These all functions and usages will not only be found in the gold or silver, but in paper money as well. Thus, the use of dinar and dirham is not obligatory for the payment for zakat.

Paper Money : Legal Currency or not

a. To test whether paper money is legal currency or not, just follow the three requirements above, if the above three requirements are found then paper money is legal currency. So, the use and role of paper money is similar to the dinar or dirham.

b. The medium of exchange is not limited to gold or silver and the barter of commodity is not confined to specific articles such as gold, silver, etc, so paper money is possibly used as medium of exchange.

c. It is indispensable reality in this era to use paper money for our medium of exchange as every corner of the world atmosphere obliges us to be involved in using such instrument.

d. The objection regarding the value (thaman) of the paper money is not relevant. Our jurists have classified thaman into to two categories: Haqiqi or intrinsic and Istilahi or mutually agreed upon (customary or urfi). There is no dispute among the jurists about the ruling that al-thaman al-istilahi has same position as an intrinsic thaman as far as Riba and Sarf transactions are concerned. So, the current note has to be considered as legal currency for all practical purposes. That is why the Council of Muslim Jurists working under Rabitah al-Alam al-Islami maintain the position of paper money is exactly similar to gold and silver.

e. The last we should bear in mind that now is the era of technology. Mostly everything which is presumed impossible in the old period now becomes possible due the sophisticated technology. It is not so difficult to make gold or silver in another form other than form of currency like something which is beautiful such as ring, necklace or any other form. For example, it had happened that a CPU costs up to not less than U$ six hundred thousand as it was made by a Japan company. Apparently the CPU was made of gold in result of which the price is too costly. if gold is used as public currency of the people, I am afraid the people who are equipped with knowledge of sophisticated technology start collecting the stock of gold -whether dinar, dirham or any other name- which is easily found everywhere and then reproduce it in to other form such as CPU as the case may be, and sell it with higher price than the legal value mentioned in such metallic currency, so that they will earn more benefit and profit than if they use as a currency. So the circulation of gold will open the door for the intelligent wrongdoer in the above manner. And this will not occur in case of paper money.

Legal Currency

1. By definition a currency is a unit of exchange, facilitating the transfer of goods and/or services. (wikipedia)

2. In Islam, there is no disagreement between the jurists, whether the old jurists or modern jurists that dinar and dirham was the legal currency. The currency which is recognized and commonly used at the time of the prophet Muhammad saw is the metal currency which is named as gold and dinar.

3. No clear evidence which instruct us to use the metal currency like dinar and dirham.

4. We can assume only from the rules and regulations in Islam which mainly affect the use of dinar and dirham, we don’t find the clear and specific evidence from saying of Muhammad that we must use dinar and dirham as our currency. The saying of Prophet: "A time is certainly coming over mankind in which there will be nothing [left] which will be of use save a dinar and a dirham." Does not mean that it is obligatory upon mankind to use dinar and dirham as currency.

5. This reality is like in Islam considered gold and silver are subject to zakat.

6. Further, at the time of Muhammad saw, all Muslim transaction considered dinar and dirham as valid and legitimate medium of exchange.

7. The use of metal currency is encouraged as it is previously used since the advent of the prophet in Islam.

8. The legal currency is that the following at least three requirements must be met:

1) It must be stored money which means the thing which can be stored.

2) It should be a medium of exchange.

3) It should be a unit of account which means the user of money can measure the value of different commodity with respect to that money. (According to Dr. Masum Billah)

How the Money Attained its Modern Form

Originally, paper money was a receipt which represented a certain amount of real money, usually gold and silver, given to the goldsmith. Paper money was a promise note to pay based on a previous deposit of quantity of money with someone in trust. A person, by using that paper money can exchange with any other service or commodity as he is declared to be the owner of that receipt and gold. Furthermore, the seller of the service or commodity could then go to the goldsmith and claims his gold by handing over the receipt. This system is known as a fully back system as the receipt issued by the goldsmith is similar to the amount of gold deposited. This time considered the gold as the main currency for trade and commerce. But eventually the use of paper money was preferred than by gold as carrying gold or metallic form of currency was not a safe practice. Since then, the people started thinking that if they wanted to buy something and they had some receipts, then why should they go to the goldsmith to exchange them for gold if they could buy directly with them.[1] Furthermore, at certain point the goldsmith assumed that although many people can exchange the receipts for the gold, not all of them do it at the same time, so he could just lend receipts for a period of time and no body would notice. Because the receipt is like gold, he can create money out of nothing and lend it at interest. Since then the principle of banking started.[2] Thus the money is no longer backed by the bank and the bank has created more money than really exists. Eventually, the gold backing money was totally abolished in August 15, 1971 when President Nixon suspended the gold payment. So the paper money that we have today is fiat money which is not backed by gold and is not really a receipt for gold as before. Moreover, the paper money is then considered as the medium of exchange.[3]

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[1] Umar Vadillo, Fatwa Concewrning the Islamic Prohibition on Using Paper-Money as a Medium of Exchange, Madinah Press, p. 27

[2] Ibid

[3] Prof. Dr. Mohd. Ma’sum Billah, Journal of Islamic Banking and Finance, volume 24 July-Sept. 2007 no 3 p. 45

History of the Dinar

• At about 500 BC, pieces of silver coin were already known. It was found in Greek, Persian, turkey and Roman Empires. However, dinar which is too a form of coin and composed of metal emerged as a currency since being used by the Muslim at 7th century. The prophet also states: "A time is certainly coming over mankind in which there will be nothing [left] which will be of use save a dinar and a dirham." which shows the availabilty of these metallic currencies during the time of prophethood.

According the history, the first clearly Islamic coin was at the time of the Khalifat Ustman as there was inscription of words "in the name of Allah" in the observe margins. Later, in the year 75 (695 CE) when the Khalifah Abdul Malik ordered Al-Hajjaj to mint the first dirham in all the regions of Dar-ul-Salam and this order continued in the subsequent periods even after the era of Khilafat. In this time also he established officially the standard of Umar Ibn al-Khattab that the weight of 10 dirhams was equivalent to 7 dinars.

• Dinar came from the Muslim practices as the use of dirham and dinar was considered as their wealth and currency since that time. However, the use of coin as a medium of barter and transaction was found even since far before the advent of Prophet Muhammad saw as mentioned above.

• Dinar is a sole property which is considered and absorbed by Islam since the advent of Prophet (pbuh).