Advantages of the Gold Standard: A Shari’ah Perspective

Prof. Dr. Mohd. Ma’sum Billah

Most Islamic scholars asserted that, the usage of fiat money as a medium of exchange should be replaced by another medium that would be fair and just; preferably gold. One advantage would be that the government will not be able to exercise total control over it as is the case of paper money. The government will no longer be able to issue more gold than is available as was the case with the paper currency where the government can print as much currency as it wishes. After all, how much will it cost to print a piece of paper? The value of gold will only change when a new gold mine is found but that too will not be a severe change. Moreover; the value of gold will eventually stabilize after a period of time.

A second advantage of gold is that, there will be no Riba al- Fadhuly (interest with extra commodity) as the government will no longer be able to fully influence the circulation of gold or its creation. However, the chance of exploitation will still occur because the gold coin may be debased. Debasement of a gold coin would mean that, it will have less gold in it than is stated on the coin.

This form of exploitation was quite common during the days when the gold coin was in use. The prince or king of a place would reduce the amount of gold in the coin and cheat his people. He would then keep the extra amount in the royal treasury for his own personal use and comfort. Hence; if a coin stated that, it was a 1.00 ounce coin, in reality it may have contained about 0.8 of an ounce.

This issue must be resolved before we decide to use the gold Dinar again as it is not much different from the exploitation that one suffers at the hands of paper money. Moreover; the whole purpose of Dinar or gold coin would then be destroyed.

A solution to this could be an auditing body that would inspect the gold coins to check whether they have the stated amount of gold in them or not. This is just like the quality control department in some firms, which check whether the quality of their goods is up to the standard or not.