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Four Initiatives Islamic Finance Must Undertake to Keep Itself Relevant in Changing Times

Part 2 of 6: Launching a Gold-Based Currency

Click here to see Part 1 of 6: Climate of Change — Four Initiatives Islamic Finance Must Undertake

An idea whose time has long since come, governments and regulators must develop a gold-based currency and begin circulating it globally. Short of this we are at the mercy of fiat currencies teetering on the brink of collapse. Moreover, there are serious Shariah implications for continuing to deal in currencies based on debt rather than on assets. For many, Islamic finance remains an empty claim as long as the very currency upon which it operates is itself predicated upon questionable standards.

Because the fractional reserve banking system enables banks to lend money they do not possess — often much more money – we are always caught in a precarious bubble of varying size and consequence. This bubble is based on the creation of ‘wealth’ without a commensurate creation of assets, enabling countries, companies, and individuals to demand more of the environment than it is naturally equipped to handle.

And lest our ambitions carry us away, we do not need a multi-country agreement to launch a globally recognized gold-based currency. Just one central bank. Dubai, with its stated ambition to become the capital of the Islamic economy, and Abu Dhabi, with the respect it commands regionally as a cash rich hydrocarbon center, would be well suited to jointly launch a parallel gold-based currency based on a gold dinar. Interests are far too deeply entrenched to ever expect fractional reserve banking to simply go away on its own. Rather, demand for a viable alternative may better hasten its undoing.

Next Week

Part 3 of 6: Developing Shariah Standards for the Environment

Click here to see Part 1 of 6: Climate of Change — Four Initiatives Islamic Finance Must Undertake

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