The State must use gold and silver as the medium of exchange. The State cannot use fiat, cryptocurrency or anything else as the official currency. The State can issue banknotes (or digital notes) that are fully convertible into gold or silver. Individuals are also allowed to barter.
To understand why the State must use the bimetallic standard we have to look at the following ayah (verse) which prohibits the hoarding of gold and silver:
"And those who hoard gold and silver and do not spend them in the way of Allah let them know that a severe punishment is awaiting them." [At-Tauba: 34]
The prohibition in the verse refers to the hoarding of money, for it acts as the generally accepted medium of exchange, and because the hoarding of money is the matter that produces the effect of the prohibition. That is, by hoarding the gold and silver, the medium of exchange is taken out of circulation and will cause prices to fall. As for other commodities, their accumulation would not be known as hoarding (Kanz), but as a monopoly (Ihtikar). Hence the verse that prohibits the hoarding of gold and silver, in fact, refers to the hoarding of money. Therefore, prohibition is focused upon the monetary medium of exchange. Thus the hoarding of gold and silver is forbidden, whether it was minted or not.
The default when it comes to tools is that it usually is permissible to use whatever tool you want. It was narrated that the Prophet (saw) sent two of the Muslims to Jurash of Yemen to learn weapons manufacturing [Ahmad]. That is, the tools that RasulAllah (saw) used for fighting were not limited to the ones that could be manufactured by Madinah "know how." However, what distinguishes the medium of exchange (unlike the use of tools for other purposes) is that it is defined in fixed rules in Islam including:
Zakat, where the minimum threshold (i.e. nisab) was determined in gold and silver.Also, the poverty level (nisab) for determining theft was also fixed in terms of gold and silver, RasulAllah (saw) said: "The hand is cut for the theft of one-quarter dinar and upward." [Bukhari]
Blood money for murder: "The blood money for one soul would be 100 camels...and for those who deal in gold it would be 1000 dinars.” [An-Nasai].
Also, the hadith about prohibiting delay when exchanging currencies referred to gold and silver, as the medium exchange: "Gold for silver would be Riba, unless it was hand to hand (without delay)." [Bukhari].
Furthermore, RasulAllah (saw) determined the weight of gold and silver with a specific weight, which was the weight of the people of Makkah. He (saw) established the units of this money, which are the ounce, Dirham, Daniq (equal to 1/6 Dirham), Carat, Mithqal and Dinar. These units were well known and widespread during the lifetime of the Messenger of Allah (saw), and all people widely used them. In a hadith reported by Abu Dawud and An-Nasai, Messenger of Allah (SAW) said: "The weight should be that of the people of Makkah."
In a sense, the use of the bimetallic standard is “hard-coded” into Islamic Law (shariah), which is different when looking at how the shariah dealt with other tools (which was left open). Therefore, society must use a bimetallic standard. That being said, the state can issue paper or electronic currency (hosted on blockchain or otherwise), but it must be fully convertible to gold or silver. In fact, it was the Caliphate that introduced the concept of cheques: “modern cheque comes from the Arabic saqq, a written vow to pay for goods when they were delivered, to avoid money having to be transported across dangerous terrain. In the 9th century, a Muslim businessman could cash a cheque in China drawn on his bank in Baghdad”.
I was surprised to see that almost no one wants to defend the fiat standard. That is, searching online you readily find arguments for the gold standard. However, this is typical of Capitalist propaganda– somewhere, somehow we got the idea that fiat is better, but can't explain how we got convinced of this idea. This is the power of society in conveying and enforcing its ideas. That being said, we can trace back to how the current fiat standard came into being. In 1971, Nixon ended the Bretton Woods system established after World War II. That system had the US dollar as the “gold standard”: where $35 US would be redeemable for gold. All other currencies would be pegged to the US dollar, resulting in fixed exchange rates. However, in the years leading up to Nixon's fateful decision, America was spending too much on Vietnam and essentially cheating on its promise to maintain the gold reserves necessary to prop-up the volumes of dollars it was printing. The Europeans figured this out and began to cash in their dollars for the real stuff, and that's when they got the proverbial finger from the US. Because when all logic fails, you just flex your nuclear muscles and you win the argument!
Although the fiat standard is bad for everyone, in the long run, it works well for the US in the short term. It gives the US immense power on the world stage. Who other than the Chinese are more entrenched in the US fiat currency system? Please don't say the Saudis, who are a manifestation of the ongoing neo-colonial policy of the Anglo-Americans, and a good reminder of the sins of British Imperialism where the British got the Muslims to rebel against the Ottomans, resulting in the disaster that you see today in the Middle East and beyond. Thanks, T.E. Lawrence/Sharif Hussain; hope you are enjoying the fruits of your hard work, now that you are with Allah! Going back to the Chinese, it’s really, they who lose every time the dollar goes down and gain when they devalue their currency. Maybe this is why the elites wanted Trump to win?
So, it should be clear that the fiat standard gives the US immense power over the world; essentially the US can create the medium of exchange out of thin air. Keep in mind, the United States’ trade deficits give it the means to export its currency to the vaults of nations/colonies outside the US. This helps keep a lid on inflation and enable’s it to control other nations. If anyone gets out of line, just yank that currency back and watch that economy fall, which we will discuss below. Some Americans do, however, see this as a long-term problem . The late MIT economist Paul A Samuelson, noted in 2005 that “In the short run the dollar appreciates relative to the Euro and Yen. That can last for as long as those countries recycle eagerly their trade surpluses with the US into holding dollar assets (Such as low-yielding American Treasury bonds). Be not misled. So strong and irreversible are America’s balance of payments deficits, we must accept that at some future date there will be a run against the dollar. Probably the kind of disorderly run that precipitates a global financial crisis”. It is precisely this observation that highlights how precarious the Capitalist economic system is. Although the current players on the world stage choose to uphold Pax Americana, it is unrealistic to believe that such support will be extended indefinitely.
Although I didn't find some principled academic dissertation on why there should be fiat, I did see this article that mocked the "official" reasons for the fiat standard. Rule Number 6 made me laugh the most; "Rules Can Be Broken," but not for the reasons stated. The irony of freedom is that goes against rules and standards. To be free, one must make their own rules – which is what Nixon did when he abandoned the gold standard. Number 2 was a close second; “PhDs Know What's Good For Us”. This is a longer discussion but it’s a good reminder that the European societies seemed to have exchanged their Christian priests for secular priests who will draw complicated formulas, claim this as sacred knowledge and then tell you that they know best (I had to study Black-Scholes option pricing in university, but that was probably one of the easier ones). The bimetallic versus fiat standard is a good example of how common sense – rather than “schooling”– can give you an advantage.
Okay, this is probably one of the easier ones. Let’s do a thought experiment. If I wrote a bunch of numbers on a piece of paper and asked you for your prized possession, would you give it to me or tell me where to go? Probably the latter. Now if I did the ‘nuclear muscle flex,' it would be the former.
Think about this at a national level. Countries sell oil, clothes, minerals, food, and other goods/services for these nothings – be they represented by pieces of paper or bits-and-bytes on computer-storage – does that make sense? It doesn’t. It comes down to belief: belief that there is value in something that possesses no value – unlike gold and silver, which do have intrinsic value.
If we flip the number 3 reason that “Gold favours the rich”, this will lead us to believe that fiat favours us all. But does that make sense; can the Capitalist elite be trusted to conjure assets out of thin air?
You may be surprised but this “intelligent minority [of] responsible men” has brought back – quoting Wall Street Journal –the “synthetic CDO, a villain of the global financial crisis”. Ten years have barely passed, and already they are gambling away the economy. We should, therefore, realize that entrusting them to determine how much money to print or destroy is foolish at best.
Points to Consider:
Not all medium of exchanges are equal: Some say that the medium of exchange is arbitrary: gold and silver were arbitrarily chosen, so it makes no difference what we choose today. This is false. There is a world of difference between one that can be manufactured by those that run society and one that has to be mined from the earth. The former can be manipulated by society to suit their interests, but the latter is more like gravity; a natural force that is imposed on the economy. Nixon didn’t like to deal with the reality that he didn’t have enough money to spend on the American foreign policy and so he got rid of that reality. So how can one equate something that can be created out of thin air with something that can’t? To equate fiat with metals is false from both a physics and a policy perspective.
Think of it as a ratio: There is enough gold and silver to cover the transactions. Why? It’s really about the amount of goods and services in the economy as a ratio to the amount of gold and silver in circulation. When countries come back to their senses and switch back, there will be an adjustment period – which could be quite turbulent. However, after that prices will stabilize. People will get used to it just as we have gotten used to this system.
Fiat currency makes it easier for the government to steal from you openly: Consider how the US President Frank Delano Roosevelt seized gold in 1930s. They had to physically come, let's say it like it is, steal that gold from you. However, with fiat, they do not have to do that. They can merely can abandon that currency in circulation in whole or in part. For example, when India demonetized the 1,000 and 500 rupee notes they were in effect saying, ‘we are going to wipe out your savings’ - resulting in many suicides. Conversely, if India had the bimetallic standard the government would have to go door to door seizing people’s wealth – a much more difficult process. Therefore, fiat gives the government arbitrary powers to rescind the store of value held by the citizenry at large.
And fiat currency allows the government to steal from you in secret: The second way that the government can take from you is through quantitative easing aka printing money. This goes back to the issue of the ratio. By printing money, the government creates inflation as now the supply of dollars has increased, but the amount of goods and services in the economy remains the same. If there are 10,000 units of an item for sale and there are 100,000 dollars in the economy; then the price would be $10/unit. If the government prints 200,000 dollars, there are 300,000 dollars in total but still only 10,000 units. This means each unit now costs $30/unit or $20 more. To understand the impact of such inflation we need to look at savings. For example, if you had saved $100, then you could have bought 10 units before the “quantitative easing”. However, after inflating the money supply – you can only buy 3 units. I am not the only one to describe this as theft. Alan Greenspan before becoming the Chairman of the Federal Reserve – whose job it was to print/destroy money – had this to say: “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation” and “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard”. It would seem that the “original” Greenspan would call the “statist” Greenspan a thief.
Currency isn’t the only fake part of the economy: It’s one thing to be concerned about whether gold and silver reserves can cover the sale and purchase of real goods and services, but another thing to wonder how it will include the other fake aspects of the Capitalist economic system. Asset prices wildly swing up and down, and it's common to hear how ‘billions of dollars' have been wiped out because Apple’s, Johnson and Johnson’s or whatever’s stock price has plummeted. However, this is paper wealth – it is not related to the actual assets that constitute the real wealth of the company. Consequently, the volumes associated with such fake transactions are irrelevant as they will not be allowed in an Islamic economy. Accordingly, instituting the bimetallic does not occur in isolation but in conjunction with the other rules.
Speaking of speculation… Before 1971, only 10% of foreign exchange transactions were speculative. However, only two decades after 1971 (i.e. when Nixon closed the gold window) “those percentages are reversed, with well over 90 percent of all transactions being speculative”. George Soros is infamously known for the massive bet he took on the British pound in 1992. According to the NYT, “[t]he trade made $1.5 billion for Quantum, and Soros, whom the British tabloids dubbed “the man who broke the Bank of England” became a household name. The bimetallic standard will, therefore, restore price stability and prevent people from getting rich through such transactions.
Fiat and the fake rulers: How do you get the world to accept fake fiat? For that, you need fake rulers who own a whole lot of oil to agree to settle for such a thing. As noted in this HuffPo article, "[t]he dollar was pegged at $35 an ounce — and freely exchangeable into gold at that rate. However, by 1971, convertibility into gold was no longer viable as America's gold resources drained away. Instead, the dollar became a pure fiat currency (decoupled from any physical store of value), until the petrodollar agreement was concluded by President Nixon in 1973…The essence of the deal was that the U.S. would agree to military sales and defense of Saudi Arabia in return for all oil trade being denominated in U.S. dollars… As a result of this agreement, the dollar then became the only medium in which energy exchange could be transacted. This underpinned its reserve currency status through the need for foreign governments to hold dollars; recirculated the dollar costs of oil back into the U.S. financial system and — crucially — made the dollar effectively convertible into barrels of oil” [Emphasis added]. The point is the fundamental pillar of the Capitalist system relies on pliant rulers in its colonial provinces, be it Pakistan, Saudi Arabia, El Salvador or wherever. Without such a colonial mentality prevalent in the palaces of the presidents, dictators or kings, the viability of such a concept would be limited at best.
How does it enable colonialism/world domination? Not only does fiat currency depend on colonialism, but it is a key instrument in enabling it. The economies of the colonies are dependent on the existence of US Dollars (USD) as the reserve currencies, which means their currencies have value because they hold USD in their vaults. As per the IMF, there was about 6.5 trillion USD held as the reserve currency, accounting for 62.48% of "allocated reserves" as of July 2018 (the Euro was second at 20.39%). Secondly, they need this USD to pay off debts owed as all loans are denominated in USD. According to SWIFT, from 2012 to 2014, the use of USD has risen from 47.6% to 51.9% (by value) and from 45.5% to 49.4% (by volume). Thirdly, these dollars will be used to settle transactions internationally: USD is needed not just to buy oil, but all goods. By buying into the USD system, the nation effectively becomes beholden to the US. When the Thai economy faced a panic – resulting in the investors began pulling out their USD and causing the currency to spike suddenly. In 2018, “[t]he lira has collapsed by 40 percent this year. Turkish banks that borrowed heavily abroad now face the near impossible task of refinancing short-term debt in expensive dollars and euros” [emphasis added]. Therefore, the Capitalists effectively control the economy, and they can remove their currencies from the nation that doesn't do their bidding. Consequently, the USD is key to ensuring the Muslim and non-Muslim "developing" countries remain their colonies.
While this allows for the enslavement of such countries, it is also a way to dominate the whole world. It allows the US to export its problems to the rest of the world. However, if the world wants to replace the USD with something else "the required change in infrastructure is daunting. Foreign-exchange markets where the dollar is the currency of reference would have to be fundamentally restructured. Deep and liquid money markets to support a reserve currency can’t be conjured up overnight”.
The linked article finishes with a great summary of how America sees this as a key to exert their influence. John Connally Jr. (Nixon’s Treasury Secretary) who stated in 1971 to a group of European finance ministers: The dollar is “our currency, but your problem."