Islamic Money against the Euro and Dollar

On January 1, 1999, Europe celebrated its momentous event of a single currency for its eleven participating members that have qualified to join the European Monetary Union according to its Convergence Criteria. Following this, it is likely that Britain, Sweden, Denmark and Greece that have either opted out or were not qualified according to the Convergence Criteria at this time, will join by the year 2002. By the year 2002 a single currency called the Euro will become the commercial medium of market exchange in Europe for the participating countries.

By establishing a single currency for the exchange of goods and services domestically and internationally, the Euro will become a determining factor of a unified monetary policy, fiscal policy, exchange rates, interest rates, and thereby, also of productivity and technological consequences of these economic changes in the participating countries. Internationally, global capital markets and investment outsources will see the rise of two competing currency mediums, the U.S. Dollar and the Euro. Countries around the world will be holding their foreign reserves and transacting their tradables in terms of these two currencies. International currencies will thus become convertible in terms of two competing units.

At such a juncture, the Muslim mind must recount as to what position the Muslim World holds in the midst of the global division of capital markets between these two competing super-currencies? What would be the state of her own resource valuation in the global scene? Do the Muslims have an agenda for change? If they do have an Agenda for change, what are the constructs of that Muslim future?

Until the end of World War II the Western Hemisphere has been engaged in the most heinous kinds of wars and civil strife within itself. Yet through the Bretton Woods Institutions established in 1944, followed by a number of economic and monetary unions between the members of the Western Hemisphere, these same warring nations could rise to a social contract that eliminated wars and political dissensions between them. It was indeed a civil accord enacted within the institution of democracy that did the work for the Western Hemisphere.

The Muslim World -- with its teeming millions, vast resources, and above all with the greatest miracle, the Qur'an, along with the guidance of the Prophet Muhammad, Sunnah, the great Islamic legacy of Shura (consultation, discourse and interactions), Ijtihad (epistemological inquiry) and Ijma (consensus), all of which are premised on the exercise of deep Islamic knowledge, tolerance and discourse -- could not realize its unity. What are then the structural issues according to which Europe could unite and the Muslims could not?

It will be too shallow an answer to this question to differentiate the Western World in respect to its democracy and the Muslim world as being bereft of democracy. Democracy is a political philosophy that flourishes on the principles of conflict guiding markets in the form of competition and capitalism that thrives on the power of corporations and the acquisitive passion for wealth. Politically, democracy thrives on the back of institutions that muster power and hegemony by majority rule. Any moral value of doing things and of directing economic resources is subsumed within market consequentialism.

There is no other premise from which democracy derives its rules of conduct than the collective power of individuals let loose in a world of competing behaviour. Such is the nature of individualism that aggregates itself from the level of individuals to institutions, to governments and to the global capitalist order. On such an utilitarian world view thrives the Western meaning of democracy.

Now take away from democracy the ultimate supremacy of the individual, the powerful lobby groups and thus of governments so formed. We will find that democracy and capitalism weaken into dysfunctional states. With this weakening comes about the collapse of the entire economic, social and political edifice on which democracy, capitalism and western institutionalism confiscate on others to survive.

Thus the imitation of Western democracy is as self-defeating as is the present days' Muslim political vacuity in the absence of a well-defined Muslim social contract. On the other hand, the divide between Islam and the West is based on two polar world views that cannot cross lines for a permanent convergence. Any cross-fertilization between the two can only be in terms of mechanical methods that we can share. It can never be in terms of the core methodology of understanding and conducting life in comprehensive ways. When Muslim forgot this subtle difference for a long time now they became blind to the many trappings of Western ways of thinking while being unable to understand this inimical culture, and thereby, being unable to adapt to it. When rulers and demagogues in the Muslim World imitate the Western designs and prevail over their citizenry, they try to lock nations into expensive bottlenecks of development, costly technological change, unequal distribution of power, deprivation of freedom and rights to the masses. Western lobbying is perpetuated through this machinery of autocratic governance as also by the Muslim World's lethargy and subservience to the costly technology, de-equalizing market processes and the concomitant governance of the West genre. To live a day in such inhuman bondage is yet another moment of increased slavery of the Muslim mind, body and soul to Western masters.

The European Monetary Union on which is premised the Euro was greatly financed by Petro-dollars that were held as assets by the wealthy Muslim rulers in EMU. By the same token, when the capital surplus Arab countries bought assets in the International Monetary Fund, they in turn tightened the grips of the IMF over these assets by securing Arab capital in Western capital markets instead of in the Muslim Countries. Consequently, the double whamy fell on the Muslim World. On the one hand, the absence of any expectations for good financial support could not generate the investment climate in the Muslim World. On the other hand, there was never enough liquidity available to support investments in the Muslim World. Finally, when global capitalism in its oppressive attire of global governance over markets and institutions arose from the West, investment capital entered Muslim countries as speculative short-term capital. These were riddled and driven by interest rate instability and proved to be unsustainable both in terms of projects and in capital markets.

Thus the alienation of the Muslim World from its own fundamental roots of understanding and doing things and its enslavement to the alien culture drifted the Muslim World from its solidarity, which could otherwise have seen the rise of parallels like the Euro and the Dollar in terms of the Islamic Money, Islamic Currency, Integrated Islamic Capital Markets and a Globally Interlinked Islamic Common Market. Herein, would be solved the present days problems of economic instability, currency run-off, investment needs, political subservience, inequity and poverty, all of which plague the Muslim World today. Along with this reconstruction would arise the political stability and organization for the spread and practice of Islamic Transformation. Thus would arise the Muslim march toward the Ummah as the Islamic globalization process.

The Islamic globalization process of Ummah as the goal of the Muslim World would look at markets in ways contrary to the capitalist greed and human deprivation now being unleashed upon the Muslim World. The irony is abhorring that in the face of exorbitant wealth possessed by a few, wealth that lies in the hands of and are controlled by Western masters, there continues to be abject deprivation and impoverishment among the majority of Muslim populations.

Islamic Money would be based on the 100 per cent reserve requirement linking monetary valuation with real sectoral activities and not with speculation or promissory notes. The productive yield arising from such a real monetary mobilization would solve the problem of low productivity among factors of production. The participatory enterprises in the midst of these transformations and real monetary linkages would remove the relevance of interest rates. Such a system would replace interest transactions with resource mobilization into participatory enterprises. Consequently, economic efficiency, distributive equity, ownership, property rights and empowerment would increase across participatory enterprises. Poverty would be eradicated and alleviated through the force of such participatory entrepreneurial activity and by the direct linkages between money and real sectoral activity.

This freedom of participatory decision-making and ownership of assets would mean the rise of the Islamic Social Contract based on the process of Shura (discourse and interaction) which is organized and realized by the understanding and application of the Precept of Unity of Allah (Tawhid) in all walks of life and thought. Such a focus will turn away the Muslim global order from the anthropocentric character of conflict, competition and individualism that grounds democracy as a political philosophy in the West. The reversal will instead be towards ethical governance of markets and exchange under the enlightened process of learning by doing by discourse, complementarity and integration as created by Islam.

The Islamic Common Market and the Islamic Capital Market would be a global integration of various regional Islamic blocs on the basis of the coordinating mechanism of the Islamic Social Contract in terms of the money-real sectoral linkages, inter-communal trade and institutional guidance of these across the Muslim World. The effect of this interrelated monetary and real sectoral activity would be the formation of the Islamic currency revolving around the financial and economic instruments that establish the money-real sectoral linkage. Thereby, an increase of spending in the Islamically recommended good things of life would create the environment of abundance in life-fulfilling goods. This in turn would generate income and wealth from real returns.

The abolition of speculation and its replacement by long-term Islamic investments in diverse Islamic opportunities, complementary possibilities and technological outlets, in government and consumer spending across the populous Muslim World, will bring about the much needed stability in markets for financial instruments and real goods and services. Hence a productivity linked stable exchange rate will emerge from such a stable market order. The enhancing effects of stable exchange rates and prices will revert to further resource mobilization, wealth, growth, development and social well-being.

Zakat will arise from the growing wealth of such a dynamic social economy and would be increasingly chanelled into productive outlets for ameliorating the poor and guaranteeing them human resources and basic needs. Institutions for mobilizing Zakat as an international resource will create microenterprises and human resource development for poverty alleviation. The great institutions of social well-being based on the mobilization of Zakat into human development for achieving security, dignity and productive transformation of the recipients, while always allocating a part of it in current consumption, for the destitute, the sick and the old, would generate industry and enterprises around such uses of the Zakat Fund. Gross unemployment and income disparity will thus be eliminated. With social security thus returning to the Muslim nations, social malaise will also decline. Much will be saved for directing into the higher pursuits of life.

With such momentous changes in the Muslim World towards the Ummah, the Dollar and the Euro will prove to be weak currencies before the Islamic Money and Islamic Currency, for they will continue to be engulfed in instability caused by interest rate movements. These will permanently disturb their currency values. The Dollar and Euro will thus continue to be simply monetary units governed by uncertain interest rate and exchange rate mechanisms. Monetary policy will remain independent of real sectoral activities. Price movements will thus be affected by the uncertainties ensuing from the monetary sector. Such an adverse effect of the monetary sector on the real sector will cause instability in both the real and the financial sectors.

Such instabilities will remain as the great predicament of the Euro and Dollar. The contrary is true of a competing monetary system and its currency that can deliver a 100 per cent reserve requirement while interconnecting money with real sector activities. Here then lies the ultimate financial architecture by means of Islamic Money, Islamic Currency, Islamic Capital Market and Islamic Common Market .These mark the worldly model of the Ummah. In it the lure for wealth is strategically replaced by the goals of production and distribution of wealth through the money-real sector linkages. This abolishes interest rates from economic transactions and premises human well-being on resource mobilization into Islamic possibilities.

Let Muslim around the world, nationally, sub-nationally and collectively take up serious work in this direction of Islamic Transformation toward the Ummah in the new millennium. Let this invocation remain our Ramadhan Resolution 1419H for its active emulation into the new Islamic millennium. May Allah help us in our rightful endeavour.