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Cryptocurrency and the Future of the Islamic Economy

Cryptocurrency and the Future of the Islamic Economy

By Harris Irfan | March 25, 2019


Islamic finance goes mainstream

When David Cameron stepped onto the stage at the World Islamic Economic Forum in 2013 to announce the United Kingdom would be the first western sovereign state to issue an Islamic bond, the mainstream press scrambled to understand more about the mysterious world of Islamic finance.  “Cameron unveils plan to make London a Mecca for Middle East wealth”, whooped the Independent, whilst the ever-opportunistic Boris Johnson grabbed his moment to share the limelight by welcoming the Islamic petrodollar to our shores.

Inwardly I sighed.  Oh sure, the sovereign sukuk, or Islamic bond, was a headline financial instrument, and its issuance by a western government was a milestone in enhancing the credibility of the UK’s Islamic finance industry in global financial markets.  I should be – and I was – proud that the City of London was the envy of the world in creating a regulatory environment to allow this form of alternative ethical finance to flourish, and proud also that I lived in a country where I am free to practise my faith.

But what if all that really mattered was a photo opportunity for politicians to entice the richest people in the world to a city where the contrast between the richest and the most deprived could be no more horrifically illustrated than the loss of 72 souls in the Grenfell Tower fire?  Has inequality in one of the world’s richest countries reached the point that a few pounds per piece of fire-proof cladding to prevent loss of life was deemed uneconomical?

If the Islamic banking industry was serving the richest in society, financing the voracious acquisition plans of private equity firms and the purchase of “super-prime” luxury apartments for high net worth families, then it had lost its way.  What once had been intended as a model for wealth distribution across society, for empowerment of communities, financial inclusion and the creation of jobs in the real economy, was now just another sophisticated tool for enriching a plutocracy.

I suppose I sound like an impotently raging socialist, but I wear the pinstripes of a different tribe.  An investment banker by trade, and a Muslim by creed, my definition of capitalism is not the one that has come to define the world economy since 1914.  Far removed from being the economic system that unleashed conspicuous consumption over the past century, for me capitalism is an ideal based on capital accumulation from savings and investments, an economic system that incentivises people to drop their preference for immediate gratification and instead invest in the future.  A system in which the “real economy” (characterised by the production of real goods and services) has a direct one-to-one correlation with what is known as the “financial economy” - the one in which shares, bonds and other financial instruments are listed and traded on exchanges, each traded piece of paper having some relationship with an underlying company or asset in the real economy.

In contrast, today’s financial economy is worth many multiples of the real economy, as “financialisation” of the economy has led to the creation of increasingly dubious – and often socially useless - financial instruments.  One doesn’t need to open Marxist pamphlets to read these views; establishment figures like the former governor of the Bank of England, Mervyn King, and the former head of the UK’s financial regulator, Lord Adair Turner, have been forthright in their condemnation of modern financial practices.

Islamic finance in its contemporary form traces its theoretical roots to the development of an economic model from the early history of Islam, and the financial tools that emerged from that model.  The second caliph, Umar ibn al-Khattab, instituted the Bayt al-Mal, the Central Treasury, a state-run financial institution responsible for the administration of alms, including the distribution of zakat.  Umar’s vision of a compassionate society was derived from the traditions of the Prophet (pbuh), centred on the protection of the weak and the vulnerable, and led to the establishment of this institution.  The Central Treasury dispensed a welfare programme to ensure equality and a basic standard of living for all citizens, thus ensuring systematic provision for widows, orphans, the infirm, the unemployed and the elderly.

Umar also introduced the concept of public trusteeship and public ownership through the charitable trust (waqf), a legal form of social collective ownership that allowed public property to generate an income stream for the benefit of the needy.  By the thirteenth century, the concept of waqf had been imported into England, as evidenced by the statutes of endowment of Merton College, one of the earliest colleges of the University of Oxford.  The endowment appears to be a direct translation from the original Arabic of statutes found in the Islamic world at the time, and the waqf survived and evolved into contemporary English trust law.  (If you are feeling mischievous, feel free to write to the Daily Mail and let them know that insidious, creeping Shari’a is already part of English law.)

And thus through this institutional framework, the basic principles of social advancement were in place during the early days of Islam.  Whilst individual property rights were protected and entrepreneurship encouraged, the framework was a conduit for the fair distribution of wealth, rather than the accumulation of wealth by a ruling class.  The conversion of contractual principles into widespread commercial tools took shape through, for example, the work of Imam Abu Hanifah and his followers.  The subsequent codification of commercial law led to the development of a widespread money economy, with gold and silver eventually giving way to paper notes during the Ottoman empire.  Cheques, letters of credit and the money transfer system became essential lubricants of the Islamic world’s economy, travelling thousands of miles down the Silk Route.  The economic well being of the Islamic world created space for scholarship to flourish, for scientific and cultural progress, and ultimately for peace to reign.

Silks and spices were not the only imports into Southern Europe.  The import of scientific advancements, commercial tools and entrepreneurial skills led Europe out of its Dark Ages, and to the creation of their own financial institutions.  But without the structure of a divinely ordained economic system, Shari’a compliant financial tools eventually gave way to interest-based European practices (the Church gradually relaxing its aversion to usury), and these institutions asserted their dominance for many centuries.

It was not until the mid-twentieth century that Islamic finance would rediscover itself, perhaps as a consequence of Muslim-majority nations seeking to assert their post-colonial identities.  At first, it was experimental in nature.  In 1963 in the town of Mit Ghamr in Egypt, a profit-sharing institution was founded that neither charged nor paid interest, and engaged in what today would be referred to as real economy transactions, investing in local trade and industry, sharing profits with depositors, functioning less as a commercial bank and more as a vehicle for savings and investments.  Think of a Shari’a compliant version of Jimmy Stewart’s charming Building and Loan institution from It’s a Wonderful Life, and you get the picture.  The model was exported to other Arab nations, until by 1975, the first multilateral Islamic development bank was created in Saudi Arabia, and the first regulated private sector Islamic bank in the UAE. 

These early banks built on the concept of the investor/manager relationship in which a provider of capital entrusts that capital to a specialist for the purpose of investment, with both parties sharing in the ensuing profits or losses.  However, as the business model matured, the industry increasingly began to mimic the practices and operations of conventional banks, driven in part by the success of the “Islamic windows” of conventional international banks.

As the market potential became apparent in the early 2000s, the international banks suspected the domestic incumbents were laid back and vulnerable, easy pickings from whom to steal market share.  And so my then employer, Deutsche Bank, posted me, a junior lieutenant, to a far off frontier outpost to survey the land and report back.  In the newly formed Dubai International Financial Centre, a financial freezone in a patch of desert one mile squared, I learnt at the feet of the Shari’a scholars, understanding how modern finance could meld with fiqh al mu’amalat, the jurisprudence of transactions.  My team and I invented financial instruments that no-one had previously thought to offer Islamic investors, all the while believing that by bringing Shari’a compliance to the full range of financial services, we would be returning the Islamic world to the roots of ethical merchant capitalism as had once been practised in its Golden Age.

How wrong we were.  As each international investment bank cottoned on to this new market and began copying our products, Islamic finance turned into a race to the bottom.  Spivvy sales teams realised that generic fatwas, the legal opinions issued by Shari’a scholars to certify a financial product as being permissible, were a licence to print money.  Off the back of these opinions, new products were “reverse engineered” from their conventional equivalents until, like the pigs in Orwell’s Animal Farm, they became indistinguishable from their predecessors.

By the time the global financial crisis hit the markets in 2007/08, Islamic finance had missed its opportunity to demonstrate how robust and beneficial it could be in an economic crisis, and the international banks retrenched to focus on bigger problems at hand.  Ever since then, Islamic finance has meandered without vigour or purpose.

So what really went wrong?

It wasn’t just that the international banks were opportunistic and fickle, there was something more fundamental at work.  It boiled down to the nature of money itself.  For as long as the boards and senior management of Islamic banks continue to have a limited understanding of why the Islamic economic model is fundamentally opposed to a modern neoliberal economic model, the Islamic banking industry will neither truly innovate, nor connect with the values and culture of its target demographic.

What is it about the nature of money that most Islamic bankers are still struggling to understand?  To those trained in the dark arts of conventional interest-based banking, the notion that money is merely a medium of exchange, a store of value and a unit of account, is entirely alien.  If money were considered merely a means to acquire “real” goods and services, and not to be traded as a commodity itself, then bankers would not be able to increase the value of their assets merely by charging interest on money they lend.  As the classical theologian, Imam Al Ghazali, had noted several centuries earlier:

“Allah created dirhams and dinars so that they may be circulated between hands and act as a fair judge between different commodities and work as a medium to acquire other things….. It becomes easy for [the financier] to earn more money on the basis of interest without bothering himself to take pains in real economic activities..... The interests of humanity cannot be safeguarded without real trade skills, industry and construction.”

Ghazali had predicted the rise of financialisation of the economy and the socially useless banker.  Transplant those same bankers into Islamic banks and the mindset of money as a tradable commodity persists.  Islamic banks become another means to extract returns merely from the act of owning money, through the alchemy of the fractional reserve banking system: the same system which allows private sector banks to lend out more than is deposited, thus creating and circulating new money in the economy.

Governments through their central banks also create new money through the act of printing more notes.  As more and more are printed, the dollars and pounds held by the general public decline in value, and they must earn more to pay for the same goods and services.  We call this inflation.  The government and the banks who create new money are the first recipients of this new money, and can spend it first, before prices rise.  The next recipients find prices are a little higher and so on down the chain, until the poorest at the end of the chain experience the greatest reduction in their purchasing power.  Whilst the rich can afford to lend out their surplus money and charge interest, the poor find it harder and harder to keep their heads above water, and inequality rises.

This inequality has been exacerbated in recent years through the phenomenon of quantitative easing, often known simply as QE.  Post the financial crisis, many central banks acted to boost the economy by creating digital money (the digital equivalent of printing it) and then using it to buy government debt in the form of bonds.  This debt repurchase allows the seller of those bonds (say a pension fund) to purchase other assets, like shares in companies.  The prices of those other assets will consequently rise, making the holders of the assets wealthier and more likely to spend, thus boosting the economy.

It sounds too good to be true, and it was.  By August 2016, the Bank of England’s QE programme had repurchased £435 billion of bonds.  In the US, the Fed increased the money supply by an incredible $4 trillion since the financial crisis, flooding financial institutions with capital and allowing them to hold onto much of that money as excess reserves.  Who benefited?  The financial institutions and their richest clients.

When a currency devalues – often to allow a government to finance war – investment in science, technology, arts, literature, healthcare, literacy and our environment declines.  As inequality increases, so does societal unrest.  Nativism and populism rises, trade barriers and physical barriers are erected, and the inevitable result is more conflict and more war.

The twentieth century was the bloodiest century in human history and it is no mere coincidence that the US dollar devalued 96% in real terms over the course of the century.  In 1914, the world’s major economies rejected the gold standard and replaced it with unsound “fiat” currency – that is, currency decreed to be legal tender by a government.  The subsequent financing of mechanised warfare took place on a scale never seen before.

This economic dogma of printing and spending persists despite 5,000 years of human history manifestly showing that empires and civilisations decline and eventually fall from the moment the ruler starts to clip his own currency.  Vast swathes of economic history have been wiped from the syllabus of today’s university economics departments and MBA schools.  The neoliberal religion of printing and spending, the financialisation of the economy, the creation of more debt instruments and more financial services only serves to reinforce and celebrate the large corporations that fund these schools.  The net result is a divided and unequal world, one that exists as a market society, a joyless place that measures exchange value and not experiential value.

Are we too late?  Can a return to a sound monetary system become the basis for an ethical form of capitalism that allows prices to be determined by the market, whilst protecting the general public and the most vulnerable in society?  Or have I gone mad, a banker in the late ‘asr of his career, rueing the choices he has made, and desperately clinging to some unrealisable ideal in the hope of redeeming himself?

Cryptocurrency as “sound” money

I think there may be a solution.  I believe it’s the most Islamic form of money I’ve seen but it hasn’t come from the world of Islamic finance.  It’s a genius piece of technology called cryptocurrency, and if it survives beyond its current infancy, I believe it has the power to change the world for the better.

Cryptocurrency is a little tricky to get one’s head around, and it’s easy to become distracted by peripheral discussions about rampant speculation, families selling their worldly possessions to buy it, high profile thefts of it from poorly secured exchanges, and outright scams.  Just like any frontier, it attracts its fair share of weirdos and bandits.  But let’s focus on the basics for now.

Cryptocurrency is a digital or virtual currency that is electronically encrypted for security.  It can be used for secure payments of online transactions.  It is not issued by a central bank and it exists in cyberspace, just as the money in our bank accounts today exists as digits on a computer.  Except in contrast to the money we use today in the form of pounds and dollars, the rules of creation, or algorithm, of a given cryptocurrency is known in advance and it is decentralised by virtue of the fact it exists potentially on millions of computers around the world, and thus cannot be manipulated (printed) by a central body.  Bitcoin is the first cryptocurrency based on a technology called blockchain, and was created ten years ago.

Blockchain is an online ledger of all transactions that have ever been conducted using Bitcoin, and this ledger is distributed simultaneously across a vast network of computers worldwide, thus ensuring all transactions must be verified by a “trustless” network of ledgers, and therefore severely negating the threat from hacking and forgery.

New Bitcoin can only be created by solving the algorithm, a process that involves massive computing power, and akin therefore to mining.  As more Bitcoin are mined, each subsequent creation of new coins becomes harder and harder, just like mining finite gold reserves.  Today, 17 million Bitcoin have been mined and the theoretical limit according to its algorithm is 21 million.  There’s much more to say, but let’s start from here.

In my view, Bitcoin has the capability to become the soundest form of money in existence.  Sound money is sometimes referred to as hard money.  It is a store of value that does not deteriorate.  Its supply is hard to increase because it is not easy to produce.  Sound money has “salability”, meaning the ease with which it can be sold in the market and exchanged for goods and services.  Sound money is freely chosen by the market as its currency of choice, and is under control of its owner, safe from meddling such as devaluation by an external party.

As you might have guessed, the soundest money that has ever existed to date is gold.  It is hard to produce and chemically robust, and is thus stable over a long period of time.  It cannot be printed, and in order to produce more of it, great efforts must be made to mine it.  Gold stockpiles grow at only 1.5% per annum.  But it is impractical today as a global currency: it is difficult to transport, and central banks have taken much of it into their possession, making it possible for them to increase the supply of money beyond the amount of gold they hold and thus devaluing the paper money once purporting to be gold-backed.  Part of the value of money has therefore been transferred from the money’s legitimate holders (the general public) to governments and banks.

Human history has shown us that when a ruler chooses an unsound money or one whose supply is easy to increase, or decides to clip an otherwise sound currency like the gold coin, the value of money falls and reduces the real wages of workers.  Governments now have access to increased money supply for financing other expenditure, often imprudently, and especially for war.  In Rome, for example, from the point at which Emperor Nero clipped the aureus, the Roman Empire began to experience a downward spiral.  Increased inflation as a result of clipping, as well as taxation to compensate for unworkable price controls, led to the exodus of urbanites to rural self-subsistence.  What had once been long term prosperity throughout the Empire gradually transformed into rioting, corruption and lawlessness, and a transition to serfdom under feudal landlords.

In contrast, whenever a government has maintained gold as its currency, without clipping or expropriation, trade and economic stability is the result, and civilisations are afforded the luxury of advancing human knowledge.  Look to the Roman Empire before Nero under the aureus, Islam’s Golden Age under the Islamic dinar, and Byzantium under the solidus. 

In more recent times, prior to 1914, the world experienced an unprecedented global accumulation of wealth and trade under one sound money, gold.  But 1914 was the beginning of the era of fiat, or government, money.  Some commentators argue that the scale of World War I was only possible because of the suspension of the gold standard.  With the suspension of the ability of the people to redeem their paper notes for gold held by banks, war expenditure was no longer limited to the treasure chest of governments, but to the entire wealth of the population.  Conflict would no longer be limited to brief, defined periods, but until the whole nation’s accumulated wealth was exhausted by stealth taxation through devaluation.

Indeed, from 1971, when the process was completed to transform the world economy from a global gold standard to one based on several fiat currencies (with the US dollar as the world’s reserve currency), the floodgates were opened to a massive increase in the supply of the dollar.  The United States could now purchase whatever it wanted from the world, financed by debt made affordable to it by inflating the very reserve currency the entire world was bound to.  And accordingly we see the rise of the military-industrial complex: unsound money has allowed corporations engaged in the business of war to grow to such an extent that they influence MBA schools, economics faculties, the media and lobby groups to advocate artfully for an endless series of wars under flimsy pretexts, with the unhinged justification that war is good for the economy.  At the same time we continue to vote in politicians who tell us we can turn our homes into ATM machines by refinancing to afford luxury cars and second homes.

At this point, I guess I may have lost some of you who think I really have gone mad.  Not content with decrying an unsound monetary system, I’m now suggesting modern democracy is a mass delusion.  By nationalising money, we place it in the control of politicians who exist for just one election cycle.  Unsound money allows those politicians to buy votes by facilitating immediate gratification through programmes like QE: spend now and let future generations pay, by which point the destruction in the value of money can be blamed on someone else.  A free lunch, in other words.  This makes government power potentially unlimited, let alone heavily interventionist.  And all the while, inflation forces the public into short term behaviours, becoming present-orientated in their decision making.  Is it any wonder that today we see the rise of Trump and Brexit?

Is cryptocurrency Shari’a compliant?

If we are to reverse this polarisation of the world, this manifest decline in equality, and an increase in war and climate change, the single most important change we must make is a return to a sound monetary system.  Cryptocurrency, and especially Bitcoin, presents us with a possible solution.  But does it sit well with the Islamic economic model and what do our scholars think?

Their recent form is not particularly auspicious.  When in the early nineteenth century the Ottoman governor of Egypt, Mehmet Ali Pasha, introduced water faucets at the Mehmet Ali Mosque in Cairo, the Egyptian ‘ulema debated whether this new fangled contraption was permissible in performing one’s ablutions before the prayer.  The only scholars who ruled this innocent fixture to be permissible were from the Hanafi school, and hence taps came to be known as hanafiyah in much of the Arab world.

For centuries, the use of the printing press by Muslims in the Ottoman Empire was banned on penalty of death, perhaps partly because this form of mass communication clashed with the scholarly oral tradition of information dissemination.  The first printing press in Istanbul allowed by Sultan Ahmet III in 1727 aroused so much suspicion from Ottoman scholars that it was subsequently shut down.  Perhaps this suicidal willingness to embrace ignorance was a contributory factor in the inevitable decline of the Ottoman Empire.

In the nineteenth century, the ‘ulema debated the minimum distance a telegraph wire could be sited near a mosque, concerned, they reasoned, that it conveyed the voice of Satan.  In the early twentieth century, Deobandi scholars banned the loudspeaker.  In the 1980s, South African ‘ulema banned the television (irrespective of its content), and even suggested Mufti Taqi Usmani’s defence of television was akin to defending the consumption of alcohol.

Now we look back on these debates with detached amusement.  Obviously our scholars couldn’t possibly make such mistakes today.  They are much more sophisticated, in touch with their flock, connected by social media, tech savvy and scientifically aware, right?  Well, not if you’ve been following the recent debate on cryptocurrency and Shari’a.  For many scholars, Bitcoin and other cryptocurrencies represent rampant, unfettered speculation, a worthless intangible bubble, the worst excesses of modern capitalism.

Over the past year, we’ve seen scholars as famous as Egypt’s Grand Mufti, Shaikh Shawki Allam, issue a fatwa ruling against the trading of Bitcoin, supporting an earlier ban by the Egyptian government.  He claimed to have met with economic experts prior to his ruling (though it is unclear who these were).  Government-appointed economists are almost always of the orthodox neoliberal flavour, what I refer to as the priests of fiat money.  Any economist brought up on the twentieth century dogma of alleged “free” markets fears a type of currency that robs them of their raison d’être, and denies their employers (the government) of financial control of the people.

The Grand Mufti’s stated reasons for the ban on the cryptocurrency were deeply illogical: he said it allowed for money laundering, fraud and the financing of terrorists, conveniently ignoring that the most prevalent currency in money laundering, fraud and terrorism is the US dollar.

He also said cryptocurrency has no set rules, making it a void contract, conveniently ignoring the fact that fiat currency – decreed to be legal tender by a government – has no set rules either.  Rather, the public place their trust in the declared currency being honoured in the exchange of real goods and services.  Certainly in the United Kingdom, Her Majesty’s Treasury does not issue me with a rule book on using a ten pound note.  That’s how currency works: through public faith and concurrence that it will be readily accepted.  In the case of fiat currency, the Bank of England can decide to reduce the value of the ten pounds sitting in my pocket by unilaterally printing more notes, thus failing to honour a moral obligation to me, introducing what Shari’a scholars call gharar (uncertainty), and thus effectively voiding any contract between us (if such a thing actually existed).  In fact, over the course of the twentieth century, so extreme has been the devaluation of fiat currency by central banks that if I held 100 US dollars at the start of the century, by the end it would be worth only 4 dollars in real terms.  In the same period, by contrast, US equity markets rose 70,950% in real terms.  Now how stable does the world’s most powerful reserve currency seem to you?

Very few of us see this as a form of taxation because we don’t calculate it in our year-end returns.  So if the eminent Grand Mufti wanted to ban Bitcoin for being a void contract due to its alleged uncertainty, he would have to ban the entire world’s fiat currencies for that very reason.

He is not alone in his views.  I have examined detailed fatwas from other scholars, many of the social media variety, with little to no understanding of modern financial markets or the monetary system, nor it would seem any knowledge of what classical fiqh al mu’amalat has to say on the subject.  These scholars say:

  • that money is created by central banks and governments (it is not – 97% is created by private sector banks through lending);
  • that governments give an undertaking to replace fiat money by something “real” if requested (not true – even the Bank of England says so on its own website);
  • that cryptocurrencies are not “real” (which reveals a misunderstanding of the role of money as a medium of exchange, store of value and unit of account, and often mistakenly assumes that Islamic money must de jure be backed by gold – in fact Shari’a does not require this);
  • that the rules of cryptocurrency are subject to change at any time (wrong, especially in the case of Bitcoin, since once the algorithm has been coded, only a majority of users in the universe of Bitcoin may agree to change the code, and thus the rules are effectively set in stone for all time henceforth);
  • that cryptocurrencies are too volatile to be a currency (and here I may concede that volatility is a natural consequence of their early phase of development, but once substantially mined, that volatility will inevitably become trivial).

I have elsewhere set out my opposition to scholars who declare cryptocurrency to be haram.  I will not repeat the argument in detail here, other than to say that in the majority of cases, these scholars have lacked a sufficiently basic understanding of the global monetary system to allow them to opine on such a technical matter.  I have read and listened to rambling diatribes revealing an embarrassing confusion in matters of commerce, finance, economics and technology.  Indeed, so extraordinarily misinformed are their views that they risk causing serious harm to the Muslim ummah, just as their forebears did in relation to advancements like the printing press. 

In all of these misinformed pronouncements, scholars have failed to make the link between the soundness of gold and that of Bitcoin: both are inflation proof, decentralised, divisible, scarce and finite.  Bitcoin has several additional qualities that gold doesn’t have, like utility as a currency (exponentially improving all the time), anonymity, speed of transfer, non-counterfeitable through the genius of the distributed ledger, more resistant to theft (if stored correctly), open source and durable.  In short, it is Gold 2.0.  Incidentally, fiat currencies have none of these characteristics, other than they are accepted as currencies.  But that’s like saying the horse is a mode of transport just like the jet airplane - another innovation the scholars once tried to ban.

So if Bitcoin has all the qualities of gold and more, does that not give it intrinsic value that the scholars seek?  Or have we already decided, like the banning of the printing press, that any new technology that improves on an older one must by necessity be the work of the Devil and we need not do any further research on it?

Bitcoin cannot be printed, it cannot be created from thin air, it is finitely bound by its algorithm and secured by the blockchain, and, most importantly from the perspective of eradicating the curse of riba (interest), it severely curtails the power of the banks.  Imagine hypothetically a world in which the only currency is Bitcoin.  Since the banks cannot create Bitcoin (they would have to mine it or earn it), they cannot issue new Bitcoin to borrowers.  And presto: their function becomes primarily one of safe custody, rather than creation of new money in the form of loans.  The national debt of governments worldwide and consumer borrowing levels have reached crisis proportions.  Bitcoin may help us to deleverage the world economy; it could be a driver in minimising the endemic oppression of riba.  Isn’t that what the Islamic banking industry was meant to achieve?

The view of qualified scholars

The Shari’a does not prefer tyranny and injustice to equality and social inclusion.  If the monetary policies of governments in recent history have led to an increase in inequality, war and climate change, a solution that benefits the public interest (maslahah) that accords with Shari’a notions of money must surely be worthy of consideration.

I am heartened to note a small handful of scholars – those expertly qualified in fiqh al mu’amalat as well as banking law, finance and economics – have begun to offer a more considered and competent assessment of this new technology.  I have explored this at length elsewhere and so will not repeat in detail, other than to point out that cryptocurrencies like Bitcoin may be considered to have the characteristics of maal (wealth) since they have desirability as a decentralised independent monetary system, and storability, as well as taqawwum (legal value) since it is storable through the distributed ledger.

There may be some legitimate debate as to whether Bitcoin also possesses thamaniyyah (currency attributes).  However increasingly, many scholars with expertise in the field are starting to conclude that as Bitcoin gains ta’amul (wide usage) and istilah (social concurrence), it takes on currency attributes and becomes a medium of exchange.  Indeed, some say Bitcoin already has istilah since it was established as a peer to peer payment system and therefore established and used as currency from the outset.  And it is this social concurrence that may be sufficient to establish Bitcoin and other cryptocurrencies as a currency in Shari’a.

FinTech as the future

We are the same stage in the evolution of cryptocurrencies that the internet was in the early 1990s.  Some could see no future or practical application for the web.  It was clunky, slow, inefficient and expensive.  Now it is ubiquitous and we cannot live without it.

You may be a traditionalist who feels that governments have our best interests at heart and that centralised monetary control is an absolute necessity.  I know it will be hard for me to convince you otherwise, because this has become received wisdom over the past century.  In my view, ceding control of the money supply to governments and banks cedes the freedom of the people.  We don’t need to look further back than 2008 to know that giving governments responsibility for monetary stability has historically been a disaster.  In the developed world, the 1% are now even richer and yet skilled and essential public sector workers like nurses are feeding their children from food banks.

A land grab is currently taking place, perhaps the greatest transfer of wealth in human history.  When the nebulae disperse and the galaxies in this new universe coalesce, who will be left with power and influence, and who will be destitute and bereft?  Whilst non-Muslims develop an independent decentralised monetary system that in the process has the potential to erase the curse of fractional reserve banking and riba, the Muslim ummah stands by idly waiting on our scholars, surrendering our intellect and decision making skills to dogma and ignorance.

Failing to adapt to the world around us represents an existential threat.  A blanket rejection of new technologies by the ‘ulema has kept the ummah in ignorance and poverty since the passing of the great scholars of Baghdad and Cordoba.

The Islamic banking industry has not delivered the economic model it once promised, but the Islamic economic model is much greater than that.  I left the world of banking a year ago to work with young, tech-savvy entrepreneurial Muslims who are discovering solutions to financial problems using technology - so called “fintech” solutions - without the need for banks to act as intermediaries.  Their computer science degrees have become much more valuable than the false models preached by today’s economics curriculum.  Cryptocurrency is one of those fintech solutions, but so also are online peer to peer crowdfunding platforms, or tech-based microfinancing of rural communities in the world’s poorest countries, or blockchain-based apps that allow philanthropists to trace their charitable payments via charities and relief agencies to end recipients.

The early pioneers of the modern Islamic banking industry had noble ideals in mind but the industry can’t see beyond its conventional mindset.  Now we have an opportunity to retake the initiative.  Just as the Golden Age of Islam borrowed science, technology and mathematics from neighbouring civilisations, so we should one again embrace what we find good in the world beyond our own horizons.  Cryptocurrency has arisen from the need to take back control and place it in the hands of the people for the general good.  If an economic system is for the benefit of all, then cryptocurrency gives us real, decentralised power, democracy at its purest.  Closing the equality gap leads to a less polarised world, fewer barriers and conflicts, and a greater ability to invest in society and our environment.  It’s not too late to save ourselves and the planet.


This article was first published in Critical Muslim, Jan-Mar 2019 edition, “Futures” and is reproduced with kind permission


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2 Comments

Mohamed Khaled 6 months ago
Researcher, Leading Finance Banking

Excellent article, thank you Mr Harris


PRODUCT DEVELOPMENT OFFICER, SUNTRUST BANK

great and interesting article but need more e,phases on the shari'ah scholars fatwa regarding cryptocurrency