T.C.

MARMARA UNIVERSITY
INSTITUTE OF ISLAMIC ECONOMICS AND FINANCE
DEPARTMENT OF ISLAMIC ECONOMICS AND FINANCE

MONETIZATION AND DEMONETIZATION IN ISLAMIC ECONOMICS:

FROM MINTED COINS TO PAPER INSTRUMENTS

MASTER OF ARTS THESIS

İSMAİL MERCİMEK

İSTANBUL, 2023

i
 T.C.
MARMARA UNIVERSITY
INSTITUTE OF ISLAMIC ECONOMICS AND FINANCE
DEPARTMENT OF ISLAMIC ECONOMICS AND FINANCE

MONETIZATION AND DEMONETIZATION IN ISLAMIC ECONOMICS:

FROM MINTED COINS TO PAPER INSTRUMENTS

MASTER OFARTS THESIS

İSMAİL MERCİMEK

ORCID: 0009-0007-3236-1133

SUPERVISOR: PROF. DR. CENGİZ KALLEK

ORCID: 0000-0002-0656-3395

İSTANBUL, 2023

ii
 ABSTRACT
MONETIZATION AND DEMONETIZATION IN ISLAMIC ECONOMICS: FROM
MINTED COINS TO PAPER INSTRUMENTS

This thesis provides a comprehensive analysis of the evolution of money in Islamic

economics. It aims to understand how Islamic economics conceptualizes money and
monetization, and how this occurred in practices. A historical analysis methodology is used
to trace the evolution of money and monetization in Islamic economics from the era of
metallism to the current era. The monetization and demonetization process of fals, chāw,
kaime and gold and silver have been analyzed. The thesis includes a comparative study of
money within the Islamic economic thought and reviews existing literature on the historical
development of money in Islamic economies. Early Islamic economic texts are delved into,
ranging from historical accounts to works of jurisprudence, and monetary policies from
varying eras to present case studies, to analyze the implications of monetary development in
the Islamic legal tradition. The thesis concludes that while Islamic economics has witnessed
transformations responding to contextual needs while remaining rooted in ethical and Sharia-
compliant foundations, there is a clear struggle in settling with modern advancements in
monetary developments. It provides valuable insights for scholars and practitioners
interested in understanding the evolution of money in Islamic economics.

Key words: Money, Monetization, Demonetization, Gold standard.

iii
 ÖZET

İSLAM EKONOMİSİNDE PARASALLAŞMA VE TEDAVÜLDEN KALKMA:

MADENİ PARADAN KAĞIT PARAYA

Bu tez, İslam iktisadında paranın evrimini kapsamlı bir şekilde analiz etmektedir. İslam
iktisadının para kavramını, parasallaştırmayı ve tedavülden kalkmayı nasıl ele aldığını ve
bunun uygulamalara nasıl yansıdığını anlamayı amaçlamaktadır. Metalizm çağından
günümüze kadar olan süreçte paranın ve parasallaştırmanın evrimini izlemek için nitel ve
tarihsel bir analiz metodolojisi kullanılmıştır. Altın, gümüş, fels, çav ve kâime gibi araçların
tedavüle girişleri ve tedavülden çıkışları değerlendirilmiştir. Tez, İslam iktisat düşüncesinde
paranın karşılaştırmalı bir incelemesini içermekte ve İslam ekonomilerinde paranın tarihsel
gelişimine ilişkin mevcut literatürü değerlendirmektedir. İslam hukuk geleneğinde parasal
gelişmelerin sonuçlarını analiz etmek için, tarihî kaynaklardan fıkıh eserlerine ve çeşitli
dönemlerden mevcut vaka çalışmaları ve para politikalarına kadar uzanan erken dönem
İslam iktisat metinleri incelenmektedir. Tez, İslam iktisadının şeriat uyumlu esaslara sadık
kalırken, modern parasal gelişmelerle nasıl uyum sağlayabileceği konusunda mevcut para
yaklaşımının yetersiz kalabileceğini öngörmektedir. İslam iktisadında paranın evrimini
anlamaya çalışan akademisyenler için değerli bilgiler sunmaktadır.

Anahtar Kelimeler: Para, Parasallaştırma, Tedavülden Kaldırma Altın Standardı

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 TABLE OF CONTENTS

1 INTRODUCTION ......................................................................................................... 1

1.1 Background of the study ............................................................................................. 1

1.2 Research problem ........................................................................................................ 2

1.3 Literature review ......................................................................................................... 3

1.4 Research methodology ................................................................................................ 4

1.5 Chapter outline ............................................................................................................ 5

2 THE CONCEPT AND HISTORY OF MONEY .......................................................... 6

2.1 The origins of money ................................................................................................... 7

2.1.1 Theorizing the origins of money: the metallism perspective ................................ 8
2.1.1.1 The orthodox theory of money ...................................................................... 9
2.1.2 Challenging the orthodox perspective: the chartalism perspective ..................... 10
2.1.2.1 The state theory of money ........................................................................... 10
2.1.2.2 The credit theory of money ......................................................................... 12
2.1.2.3 Modern money theory (MMT) .................................................................... 15

2.2 Pre-Islamic monetary debates .................................................................................. 16

2.2.1 Ancient Greece .................................................................................................... 17
2.2.2 Ancient India and China ...................................................................................... 20
2.2.3 Pre-Islamic Arabia ............................................................................................... 21

2.3 The history of money ................................................................................................. 22

2.4 Money in Islamic history........................................................................................... 26

3 THE DEFINITION OF MONEY ................................................................................ 30

3.1 Money in Islamic literature ...................................................................................... 30

3.1.1 Thaman ................................................................................................................ 30
3.1.2 Naqd .................................................................................................................... 31
3.1.3 Gold and silver .................................................................................................... 33
3.1.3.1 Dirham ......................................................................................................... 33
3.1.3.2 Dinar ............................................................................................................ 34
3.1.4 Fals ...................................................................................................................... 35

3.2 Types of money .......................................................................................................... 37

3.2.1 According to economists ..................................................................................... 37
3.2.2 According to Islamic jurists................................................................................. 43

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4 THE CONCEPT OF MONETIZATION..................................................................... 45

4.1 Money in a metallic economy: the natural state in early Islamic economics ....... 46
4.1.1 Money supply and money stock .......................................................................... 46
4.1.2 Coinage ................................................................................................................ 47
4.1.3 Seigniorage .......................................................................................................... 49
4.1.4 The government ................................................................................................... 50
4.1.5 The people ........................................................................................................... 52
4.1.6 Debasement ......................................................................................................... 53

4.2 Monetization and demonetization in Islamic economics........................................ 54

4.2.1 Monetization ........................................................................................................ 54
4.2.2 Demonetization .................................................................................................... 55
4.2.3 Understanding exchange in Islamic jurisprudence .............................................. 55
4.2.4 The concept of mubādala ..................................................................................... 55
4.2.4.1 Dhimma and the ʿayn/dayn dyad ................................................................. 58
4.2.4.2 Thaman, mabīʿ or somewhere in between. .................................................. 59
4.2.4.3 Muqāyaḍa, mubādala and ṣarf ..................................................................... 61
4.2.5 Thaman and thamaniyya...................................................................................... 63

4.3 Monetization and demonetization of currencies in Islamic history ...................... 64

4.3.1 Gold and silver as money .................................................................................... 64
4.3.1.1 Monetization of gold and silver ................................................................... 65
4.3.1.2 Demonetization of gold and silver............................................................... 69
4.3.2 Fals as money ...................................................................................................... 72
4.3.2.1 Fals in the Islamic legal corpus ................................................................... 74
4.3.2.2 Al-ʿilla al-qāṣira and Al-ʿilla al-mutaʿaddiya .............................................. 75
4.3.2.3 Legal rulings in cases of kasād, inqiṭāʿ, rakhṣ and ghalā ............................ 76
4.3.3 Securities: the suftaja, ṣakk, chāw and kāʾime .................................................... 78
4.3.3.1 The suftaja ................................................................................................... 79
4.3.3.2 The ṣakk ....................................................................................................... 81
4.3.3.3 The chāw...................................................................................................... 82
4.3.3.4 The kāʾime ................................................................................................... 84
4.3.4 The introduction of paper money ........................................................................ 86
4.3.4.1 Paper money is a precious metal derivative ................................................ 87
4.3.4.2 Paper money is a commodity other than gold and silver. ............................ 88
4.3.4.3 Paper money is a unique form of money ..................................................... 89

5 CONCLUSION ........................................................................................................... 90

BIBLIOGRAPHY ............................................................................................................... 93

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 TABLES

Table 2.1 : Metallism and Chartalism: some monetary theories compared. ....................... 16
Table 3.1 : Types of money in modern economics.............................................................. 42
Table 4.1 : Legal rulings in case of demonetization of a currency ...................................... 69
Table 4.2 : Legal rulings of fals in cases of demonetization, shortage, devaluation, and
revaluation…………………………………………………………………………………77

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 1 INTRODUCTION

1.1 Background of the study

Money is broadly defined as the set of economic assets that are regularly used to buy and sell
goods and services. Economists further note that money should have three main functions: a
medium of exchange, a unit of account and a store of value.1 The word money in pre-modern
times evoked a sundry of different commodities. However, in time, state sovereignty, monetary
technologies and social structures drastically developed, and so too did the concept of money.
While commodities are seen as the most widely used forms of money in ancient civilizations,
promissory documents such as bank and government notes gradually took over the role of
means of payment, later on paper money replaced these documents. Yet again development of
monetary instruments advanced and bank money took over greater portions of economic
transactions. In 2020, the percentage of cash, i.e., physical money, payments to total payments
is 21% in the Netherlands,2 19% in the US,3 just 13% in China,4 and less than 10% in Sweden.5
Naturally, the percentage is expected to decrease even further.

As monetary instruments and their underlying technologies significantly changed over time,
problems surrounding these subjects increased as well. Monetary theories and policies, inflation
and interest rates, and other issues have occupied both academics and governments for decades.
Recently, due to the rise in market price of gold against other currencies, the recent financial
crises, debates surrounding the legal and feasible aspects of crypto currencies, and several other
causes, gold-sympathizers started redebating a return to the gold standard.6 Prior to that, several
Islamic economists – later coined the dinarist movement7 – have argued that gold was and is
the money to be.8 While history shows that gold and other metallic coins have served as money

1
Mankiw, Principles of Economics, 590-91.
2
De Nederlandsche Bank - Betaalvereniging, “Betalen Aan de Kassa,” 2.
3
Federal Reserve Board, “Money and Payments : The U.S. Dollar in the Age of Digital Transformation,” 16.
4
Worldpay, “The Global Payments Report 2021”, 12; https://worldpay.globalpaymentsreport.com/en/.
5
Riksbank, “Payments in Sweden 2020” (Stockholm: Riksbank, October 2020), https://www.riksbank.se/en-
gb/payments--cash/payments-in-sweden/payments-in-sweden-2020/.
6
Bryan P. Cutsinger, “On the feasibility of returning to the gold standard,” The Quarterly Review of Economics
and Finance 78 (November 1, 2020): 88-97.
7
The dinarist movement loosely refers to those academics who promulgate a return to gold currencies. Prominent
supporters are Ahmad Kameel (Malaysia), Noord Deros (Singapore), Umar Vadillo (Italy), and the Murabitun
movement (Africa), see Azhar Mohamad - Imtiaz Mohammad Sifat, “Gold vis-à-vis money in Islam: The case
against Dinarist Movement,” International Journal of Law and Management 59/6 (2017): 977-992.
8
Askari - Krichene, The Gold Standard Anchored in Islamic Finance, 23-25.
1
for a long time, it is difficult, if not impossible, to pinpoint the exact moment when the notion
of gold as the money standard originated. Besides the lack of archeological and scriptural proof
for such decisive claims, the sole concept of money makes it clear that there will be no definitive
conclusion to this discussion, because money is not limited to minted and printed objects. In
order to discuss the concept and nature of money and the process of monetization, historical
understanding of these concepts ought to be analyzed appropriately.

1.2 Research problem

It is beyond doubt that the Islamic tradition prohibits ribā or interest in a decisive and clear
manner.9 While interest rates constitute one of the fundamental building blocks of modern
finance, Islamic economists claim that financing in particular and economics as a whole should
function without interest. However, they encountered a serious trouble in finding a right balance
between the problem of inflation in fiat economies on one hand and the Islamic prohibition of
ribā on the other. Until recently, most Islamic economists and Muslim jurists have proposed
solutions from either the inflation or the interest side of the issue; while they remain to be a
minority, some have argued that the classical traditional concept of ribā should be limited to
golden and silver money, effectively arguing that there is no interest in modern paper money
transactions. Yet other scholars have claimed that, in times of high inflation, interest rates lower
than or equal to inflation rates should not fall into the prohibited ribā. Whatever both parties’
arguments may be, I would like to note that the Islamic and conventional economic literature
have not fully analyzed and developed what lies at the core essence of both inflation and
interest: the concept known to everyone as money. Especially in the Islamic juristic tradition,
the concept of money needs a revision to keep up with the current developments and
understandings of what exactly money – and by extension, monetization – actually is. This
thesis will thus provide a different perspective on money from an Islamic juristic perspective,
aided by historical and economic findings.

In this study, I delve into the concepts of money and monetization both from economic and
Islamic legal perspectives and put forth a clear picture of what makes a good become money
and how monetization or demonetization of certain goods occurred in the Islamic tradition.

9
For Qurʾanic verses on the prohibition of and punishment for ribā, see Qurʾan 2:275-280, 3:130, 4:161, 30:39.
While there is a general agreement on its prohibition, there is a substantial debate regarding the scope of ribā
within our modern economic and financial system, cf. Khalil - Thomas, “The Modern Debate over Riba in
Egypt.”
2
There will be a special focus on gold and silver as money. To understand the concepts of money
and monetization, a general frame of what constitutes money and a short history of it has to be
set. The main aim of this study is to find out in what ways money developed in Islamic legal
tradition and the different rulings related to monetization and demonetization with the Islamic
legal framework. By this, a small gap in the literature of Islamic monetary economics is filled.

1.3 Literature review

Pre-modern Islamic literature on money are variant. One may find numerous texts on money in
books of Islamic jurisprudence, history, asceticism, and legal verdicts, but they are mostly only
a chapter or a few paragraphs within a book. Books on jurisprudence frequently cover what
money is and the various forms of money in use, books on history often describe important
monetary developments, while legal verdicts give a good insight into the ethics of money.
Conceptual information about money is found in chapters on buyūʿ (sales) in works of
jurisprudence. It remains, however, a search for a macroeconomic image within microeconomic
data.

Several works have been written on money in Islamic economics. Aḥmad Ḥasan, in his al-
awrāq al-naqdiyya fī al-iqtiṣād al-islāmī qiymatuhā wa aḥkāmuhā (paper money in Islamic
economics; its value and its rulings), has divided the subject into five chapters.10 In the
introduction, he explains the concept of money and its historical development. In the first
chapter, he elaborates on the types of money and their distinctive features. The second chapter
is dedicated to the discussion of the māliyya of paper money in Islamic jurisprudence in which
he categorizes six views on paper money and analyzes each view with respect to its legal
outcome in zakāt, ribā, ṣarf, and muḍāraba. The third chapter presents the Shariah proofs for
paper money’s legitimacy and the final chapter discusses the different rulings on paper money.
The author presents a good picture of money in Islamic jurisprudence; however, he does refrain
from considering historical, sociological, and anthropological findings, resulting in a one-sided
approach to a multidisciplinary concept. Masadul Alam Choudhury takes a more
macroeconomic stance while discussing the matter of money in his work The principles of
Islamic political economy: A methodological enquiry, but it is somewhat devoid of intra-
religious discussions surrounding the concept of paper money.11

10
Ḥasan, Al-Awrāq Al-Naqdiyya Fī Al-Iqtiṣād Al-Islāmi Qiymatuhā Wa Aḥkāmuhā, 19–23.
11
Choudhury, The Principles of Islamic Political Economy: A Methodological Inquiry, 9–40.
3
Two other very resourceful books are the Handbook of the history of money and currency and
Money in the Western legal tradition edited by Steffano Battilossi, Youssef Cassis, and
Kazuhiko Yago, and David Fox and Wolfgang Ernst, respectively.12 The first book consists of
ten chapters, each covering ten broad themes: the historical origins of money; money, coinage,
and the state; trade, money markets, and international currencies; money and metals; monetary
experiments; Asian monetary systems; exchange rate regimes; monetary integration; central
banking and monetary policy; and aggregate price shocks. While the book spans a wide
geographical area, its focus is Western Europe and the USA, as most existing research does.
The second book covers the Western legal tradition on money from the early medieval period
until today. The first part covers the early middle ages and discusses metallism, the second part
discusses money in the early modern period and describes the triumph of nominalism over
metallism, the third and fourth ones consist of pivotal discussions on bank and paper money,
and the final one consists of a discussion on the fiat money system and the relevant theories.
Both books only cover the Islamic developments to a minimum degree.

Beyzanur Almis’ From coin to digital currency: Examination of cryptocurrencies in the context
of Islamic economics titled Masters thesis is an useful source for Islamic monetary economics.

For the general monetary system in the early Islamic period, I have made extensive use of
Cengiz Kallek’s doctoral dissertation, Sosyal servet: Islam’da yönetim-piyasa ilişkisi (Social
wealth: The relation between governance and markets in Islam),13 and Sayed Kazem Sadr’s
work The economic system of the early Islamic period.14 Both books have proved to be key
sources of the Islamic monetary system.

1.4 Research methodology

For this study, I choose a historical analysis methodology in which I conduct a comprehensive
historical analysis tracing the evolution of money and monetization in Islamic economics from
the era of metallism to the current age. Since money is a cross cultural phenomenon, I have
included a comparative study of money within the Islamic economic thought and reviewed
existing literature on the historical development of money in Muslim economies, emphasizing
scholarly works that discuss its monetization and development. Furthermore, I delve into early

12
Fox and Ernst, Money in the Western Legal Tradition: Middle Ages to Bretton Woods.
13
Kallek, Sosyal Servet İslam’da Yönetim-Piyasa İlişkisi.
14
Sadr, The Economic System of the Early Islamic Period: Institutions and Policies.
4
Islamic economic texts, ranging from historical accounts to works of jurisprudence, and
monetary policies from varying eras to present case studies to analyze the implications of
monetary development in the Islamic legal tradition. Finally, I present conclusions based on the
research findings, relating them to the broader context of Islamic economics, and propose
recommendations and implications for further research in this field. I do recognize that this is
a broad and inter-disciplinary topic, and more research is highly required.

1.5 Chapter outline

The first chapter introduces the topic at hand and poses the research problem and research
methodology. The second one presents an outline for the historical development of money,
while the third consists of a discussion on money’s definition and on relevant terms. The fourth
chapter comprises the process of monetization in Islamic economics, this is illustrated by
presenting core discussions in Islamic law and seminal historical examples. Finally, the study
concludes with a discussion on the findings in the conclustion.

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 2 THE CONCEPT AND HISTORY OF MONEY

“Money is money” and “money makes the world go round” are two well-used axioms, the first
signifying the importance of money no matter how it is earned, the second emphasizing the
important modern role it plays. On the other hand, money has been deemed as something quite
opposite to life’s cornerstone as modern times suggests: “For the love of money is a root of all
kinds of evil” says a biblical verse.15 In Islam, money is not intrinsically good or evil, but an
excessive love for anything ephemeral causing one to forget the eternal is contrary to Islamic
teachings – and Christian alike. As to what money exactly is, both religions remain quite silent
on the subject, indicating that it is left to time and tradition. Hence, this chapter aims to present
the historical development of money throughout the ages in different regions. This is by far not
extensive research on money’s history, rather, I aim to summarize how money has taken its
place in humankind’s venture through time.

Historically, innumerable commodities have been used as a medium of exchange, standard of

measure, or store of value, often concurrently. A certain classification has been made for the
types of money and monetary commodities in-use today, but categorizing early primitive forms
of money remains an exceedingly challenging endeavor. Since the modern economic system is
operational, definitions and distinctions are easier to make when compared to a monetary
system partly known, and mostly derived from historical records. It seems to me that defining
money based on its history has proven how complex and interwoven this subject at hand is.16

While a comprehensive and analytical study of primitive forms of money may prove useful to
the understanding of money’s historical context, it is important to acknowledge that our current
monetary system has deviated significantly from its earlier iterations. Nevertheless, this thesis
aims to understand how Islamic economics conceptualizes money and monetization.
Consequently, a pivotal aspect of the thesis involves exploring the historical discourse on what
money represents and its intended functions are.

This chapter provides a general historical overview of the origins of money, summarizing
various theories pertaining to its emergence and the factors that led to its acceptance as a
medium of exchange. Throughout the discussion, I try doing so without intruding much into

15
New International Version Bible Timothy, 1:17.
16
Take for example the cowrie shells of China, or the rai stones of the Yap islands in the Federated States of
Micronesia. Are they examples of debt exchange, or are they primitive forms of representative money?
6
the domain of numismatics or history. Instead, the focus will be on presenting the topic
primarily from the vantage points of conventional economics and subsequently from the
perspective offered by Islamic economics.

2.1 The origins of money

The explanation of the origin and development of money has been a subject of profound
scholarly interest. In essence, two main approaches can be distinguished within economic
literature on the origins of money: the metallist perspective and the chartalist perspective. As a
matter of fact, these two approaches are iconically symbolized by two sides of the coin: heads
and tails. The head symbolizes the chartal, the authority behind money; in contrast, the tails
symbolizes money’s value given by the market.17 According to some, the foundations of both
theories can be traced back to and were proponed by two major figures in ancient Greece, Plato
and Aristotle, however, their texts are far too scarce and insufficient to attribute such theories
to them.18 It is quite clear though that the metallist approach dominated economic literature
throughout the ages, until the 19th century when the first work – and later on more substantial
literature – was written arguing for a different money theory.

The metalist approach argues that money is money due to its intrinsic value, and anything that
has no intrinsic value cannot and ought not to be money. This theory is closely related to the
natural theory of money, although they both have their distinctive features. The chartalist
theory, on the other hand, argues that money is accepted as a means of payment due to a
government’s or authorities’ acceptance of it, irrelative of its intrinsic value.19 The orthodox
theory of money is closely related to the metallist perspective, the state and credit theory of
money are subtracts from the chartalist perspective. According to metallists, money is a medium
of exchange first and foremost and came to be due to market dynamics as will be explained
shortly. To chartalists, however, the concept of money is a numéraire, a basic standard or a unit
of account before anything else. In this chapter, I take a look at both perspectives and present
the readers both approaches with their relating theories.

17
Hart, “Heads or Tails? Two Sides of the Coin,” 637-56.
18
Schumpeter, History of Economic Analysis, 48-69.
19
Knapp, The State Theory of Money, 25-28.
7
2.1.1 Theorizing the origins of money: the metallism perspective

According to this view, early human societies functioned in self-sufficient families, obviating
the need for exchange or trade. As societies evolved, settled in smaller communities, and
specialized their labor, barter trade emerged as a means of meeting specific needs. The farmer
exchanged livestock for bread from the baker, who, in turn, exchanged bread for clothes with
the tailor, who, in turn, traded his clothes for kitchenware with the blacksmith, and so on. Barter
sufficed during the initial stages of humanity when individual needs were limited. However, as
communities grew larger and more complex, the barter system became inadequate due to
challenges such as deferred payment, lack of a standard measure of value, difficulty in wealth
storage, and – perhaps most notably – the absence of double coincidence of wants.20

In response to these limitations, specific commodities emerged as preferred mediums of

exchange, leading to the concept of the preferred barter item21 or primitive money.22 Eventually,
mankind recognized gold and silver as the most ideal media for exchange, laying the foundation
for the pre-modern notion of money. Primeval monies, including gold and silver, are considered
commodity monies due to their inherent value, which persists irrespective of their function as
mediums of exchange. Even if these goods were not used as money, they would still have value
on their own. The transition from non-exchange to barter and subsequently to money is evident
in early writings, extending from the works of Aristotle to the founding ideas of modern
economics by Adam Smith.

In his Wealth of Nations, Adam Smith explains, quite similar to Aristotle, the emergence and
properties of money as a natural transition from barter to monetary exchange. However, Smith
delves deeper into the underlying reasons for such a transition and argues that the division of
labor and subsequent specialization is the main cause: in the initial stages of mankind, every
household would produce that what they needed for themselves, there was hardly any need for
exchange as we know it in pre-modern times. While societies grew larger and developed further,
mankind would divide labor among people. A baker would only bake bread, a tailor would only
tailor clothes and so forth. the need for a natural medium, a material that would be generally

20
For more information on the problems of a barter system and objections to it, see Graeber, Debt : The First 5,000
Years; Hudson, “Origins of Money and Interest: Palatial Credit, Not Barter.”
21
Davies, A History of Money from Ancient Times to the Present Day, 10.
22
Grierson, The Origins of the Money, 8.
8
accepted and which would allow people from different labors to value other goods fairly, grew
larger. By using such a medium, the concept of money was born.

So, according to Smith, money is the “natural medium” between the exchange of commodities.
The most available precious metals, gold and silver, despite their fluctuating values, became
the most ideal commodities to take on this interposed role. Smith argues that money is only the
nominal price given by a certain society in a given time to a commodity. The real standard of a
commodity’s price is and will always be labor alone. Then again, even labor has a nominal and
real price. Consequently, the same real price is always of the same value; but the same nominal
price is sometimes of a different value. Despite the superiority of labor, Smith admits that
money (i.e., gold or silver) is the exact measure of the real exchangeable commodities’ values,
but only in that specific time and place.23

2.1.1.1 The orthodox theory of money

The Orthodox theory posits that the development of money followed the trajectory of human
history, evolving from the abovementioned self-sufficient households to barter economies and
eventually transitioning into commodity money and paper money. This theory emphasizes
rational decision-making by individuals, minimizing transaction costs while optimizing the
marginal cost curve, and the pursuit of efficiency as pivotal factors driving this progression.
Markets and the laws of supply and demand caused the invention of “money” and assured that
it would evolve from primitive commodities to the precious metals and paper money. This
theory is seen as natural and market driven by its proponents and the explanation goes as
follows:

The journey of human history originates with self-sufficient households during the foraging
era. In this phase, each household independently sought sustenance through hunting and
gathering to fulfill their basic needs. Over time, as communities formed and households began
to live in proximity, the necessity for inter-household exchange became evident. The concept
of barter emerged, where goods were traded directly between households. However, the true
prominence of barter exchange arose when communities shifted from foraging to agricultural
and pastoral practices, marking the transition from scattered households to more organized
communities.

23
Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 28-39.
9
As the communal lifestyle took hold, the limitations of individual households in meeting their
diverse needs became evident. This marked the inception of the barter economy, where goods
were exchanged based on their perceived values. The growth of communities eventually led to
the emergence of cities and markets, where trade and interactions expanded beyond local
boundaries. With this growth, the inherent challenges of the barter system, particularly the
requirement for a double coincidence of wants and the practical difficulties of transporting
goods for exchange, became increasingly apparent.

In response to these challenges, various mediums of exchange began to emerge as innovative

solutions. Among these, precious metals like gold and silver stood the test of time due to their
malleability, durability, divisibility, and universal acceptance. This transition marked the
monetization of markets, establishing a standardized system of value for transactions. Over
time, rulers and authorities played a role in governing and regulating the minting of currency
to maintain consistency and prevent fraudulent practices.

However, the trajectory of human development continued, leading to further advancements.

With the advancement of technologies and the increasing complexity of economies, the concept
of paper money was introduced. Paper banknotes, backed by trusted institutions, offered
advantages such as portability, convenience, and reduction of transaction costs. This innovation
marked a pivotal moment in financial history and set the stage for fractional reserve banking,
where banks began to issue more notes than the physical reserves they held, effectively
expanding the money supply and enabling more economic activity.

The natural theory and market theory of money are other names for the orthodox perspective.
The metallist theory and commodity theory of money may be seen as subtracts of the orthodox
theory, for it argues that money is money due to its intrinsic value or it being a commodity
governed by the laws of supply and demand respectively.

2.1.2 Challenging the orthodox perspective: the chartalism perspective

2.1.2.1 The state theory of money

One of the most significant critiques of the orthodox theory of money comes from researchers
who emphasize the role of authority in the origin of money. This perspective, known as the
state theory of money or simply chartalism, argues that money did not originate from the market
system, as previously thought. Instead, it emerged from the legal system. According to this

10
view, any form of authority or, in its most developed form, the state, imposes a debt in the form
of a generalized social accounting unit to establish an obligation.

The historical development of this form did not necessarily require the prior existence of a
market. The earliest example of this concept is the system based on blood/compensation money
in tribal societies. To prevent blood feuds resulting from the killing of a tribe member, the tribal
leader (authority) mandates compensation to those harmed by this crime. Over time, these
institutionalized compensations were determined to be easily obtainable by the offender and
beneficial goods to the recipient of payment. In this context, the role of authority is to name the
obligation it imposes, determine how it will be fulfilled, and thus set its price.

Hence, money is not something rational individuals discovered to maximize their benefits, as
claimed by the orthodox theory. This principle also applies to the formation of the market. In
short, money is created within the context of social and societal relationships. The material
composition of money is not a necessary condition for it to be considered money. The
acceptance of an object as money requires the state to choose it as a unit and the subjects to
accept it for payments. In the final stage, the state itself exports these objects to standardize
them further.

Georg Friedrich Knapp (d. 1926), perhaps the first proponent of the state theory of money,
contends in the introduction of his renowned book that money is an object created by the legal
system.24 Thus, he suggests that the theory of money should be considered along with legal
history. According to Knapp, the essence of money lies not in the material content of the money,
but in the legal orders that regulate their use.25 In this context, determining the exchange
medium, naming the payment instrument according to a new unit of value, and defining the
new unit are entirely dependent on the authority of the state. In other words, the state not only
enforces but also has the right to issue its own money. This right has been acquired by the state
in the earliest ages of recorded history. In contemporary times, this is carried out through legal
tender laws. Privately issued currencies are considered limited forms of token money at most.

Representational money can gain its characteristic as money through an announcement made
by the state, confirming its validity in settling debts within society. However, for it to be
accepted as money, it needs to be accepted for payments to the state. In this sense, the
acceptance of something by the state for its own payments is sufficient for it to be considered

24
Knapp, The State Theory of Money, 1.
25
Ibid., 25-26.
11
money, even if it is part of a commodity, fiduciary, or administrative system. Thus, the
determination of what constitutes money is the prerogative of the state.

Conclusively, legal tender, i.e., money, the unit of account, and the payment instrument all
correspond to the state’s authority. In the post-Keynesian era, similar views have been put
forward by some economists. For instance, Hyman Minsky (d. 1996) suggests that the value of
government money is largely determined by taxes. He asserts that in an economy where public
debt is the primary asset on the balance sheets of banks that accept deposits, the real economic
value of money is determined by future tax payments. The virtue of a balanced budget (where
taxes equal or exceed expenditures) is that it determines the value of money in terms of taxes.
Minsky also contends that the hierarchy of money places government money at the top, bank
money in the middle, and obligations of firms and households at the bottom. This hierarchy
reflects the liquidity level of money, with government money having the highest liquidity. Abba
Ptachya Lerner (d. 1982), following other researchers in the state theory of money, reaffirms
that “money is a creature of the state” and emphasizes that the key factor determining money is
its acceptance by the state.26

2.1.2.2 The credit theory of money

According to this third theory, claim or credit and not barter was the prevalent way of settling
one’s bilateral needs in exchange. Thus, the fundamental proposition of this view is that money
originates from debt.27 The claim theory of money is closely linked to the nominalist theory of
money where money is considered a unit of account first and foremost. A good example for a
money that served as the unit of account is the ox in ancient societies. The indebted ox was
never traded nor was the ox-debt ever settled, it was merely used as a unit of account to ledger
the debt of an individual or public person. This is in stark contrast to the commodity theory of
the orthodox economics, which claims that credit money only emerged in later stages.
According to the claim theory of money, moneyness or money itself is not a physical or tangible
concrete, and certainly not defined and shaped by the coin. Money itself is an abstract notion,
of which coins, commodity and primitive monies, paper money and the like are mere concrete
examples.

26
Lerner, “Money as a Creature of the State,” 317.
27
Ingham, “The Nature of Money,” 39-41.
12
Economic process has consistently been reinforced by a collection of debt agreements across
all structured societies. This holds true even in highly centralized systems like ancient Egypt's
despotic ultra-centralized rule and the former Soviet-style regimes of Eastern Europe. Historical
records indicate that, irrespective of the prevailing property structures in ancient societies, debt
contracts were present prior to the existence of currency. For instance, Babylonian bills of
exchange, meticulously regulated by the Code of Hammurabi, and ledger entries such as wheat
deposits in ancient Egypt all exemplify credit-debt relationships in eras predating the
establishment of coins or other well-defined circulating mediums of exchange.28

In opposition to the orthodox theory’s stance, advocates of the credit theory contend that the
exchange tools and currency utilized in early societies did not pave the way for market
development or monetary utilization. The absence of private property institutions in these
solidarity-driven communal societies hindered money’s creation. Only with the advent of
private transferable property could money’s utility and market evolution come to be. According
to this theory, the initial stages of mankind were based on communal credit: when a person
needed a certain commodity, he would borrow this from someone in the community who has it
in surplus. In turn, he would be indebted to that person, but there is no need to repay his debt
right away. The communal solidarity mechanisms were so strong that he would repay it in the
form of a different commodity in the future, when the creditor needs some commodity owned
by the debtor. That way, the problem of double coincidence of wants would be solved and there
is no need for a medium of exchange perse.

Consequently, this borrowing arrangement triggers economic transactions. Over time, such
lending arrangements might transform into peonage, also called debt bondage. When debt
bondage dissolves, lenders face uncertainties during contract periods. As a result, lenders
demand an additional surplus in repayment to mitigate their risk with eventually, as lending
contracts increase, repayment terms standardize. This process culminates in all contracts
gravitating toward a standardized framework like a unit of account.29 Historical evidence points
to temples playing a pivotal role in standardizing the unit of account, initially using wheat and
subsequently incorporating barley. Organized and standardized institutions of debt and credit
settlement are what we would call banks in modern days.

28
Parguez - Seccareccia, “The Credit Theory of Money: The Monetary Circuit Approach,” 102.
29
Heinshohn - Steiger, “The Property Theory of Interest and Money,” 81-89.
13
In essence, the credit theory can be summarized as follows: a sale and purchase transaction
represents the exchange of a commodity for a credit. From this primary theory emerges a sub-
theory that emphasizes the value of credit or money as not being contingent upon the value of
any specific metal, but rather on the creditor's entitlement to ‘payment,’ signifying satisfaction
for the credit, and the debtor's responsibility to ‘pay’ the debt. Conversely, it also hinges on the
debtor's right to settle their debt by offering an equivalent debt owed by the creditor, and the
obligation of the creditor to accept this proposal as fulfillment of the credit.30 Credit predates
commodity money, with money’s unit of account role preceding its function as an exchange
medium. This dispels the hypothetical barter economy as money’s origin and underscores that
money emerged as a unit of account within credit contracts.

When we look at modern times, Alfred Mitchell-Innes (d.1950) asserts that government-issued
money is also credit money. Innes substantiates this notion by proposing that as governments
issue and expend their money, they effectively become debtors. This occurs because money
poses a liability for issuers, eventually crystallizing as a debt paid by taxpayers. Even during
the gold standard era, convertible paper money remained a form of credit money for the
government. Despite its convertibility to gold, it could not be fully redeemed in gold. Hence,
be it fiat money or convertible tokens, government money embodies credit. In essence, money
holders extend credit to the government, and money’s value stems from the government’s
commitment to accept it. The defining characteristic of government money lies in its tax-
settlement capability, rendering taxation the source of its value. This counters the orthodox
theory, which attributes money’s essence to precious metals, conversion promises, or legal
tender laws. Individuals’ demand for money is not driven by these factors; rather, the
government’s tax authority and acceptance in treasuries at nominal values bestow value. Based
on this, Innes posits that credit precedes market creation, engendering market need. Initial
determinations of prices for goods and services that fulfill authority-related obligations
preceded market emergence. This contrasts with the orthodox theory, which places barter-based
markets and relative prices before unit of account money and nominal prices. In essence, money
and prices predate markets and monetary instruments. In evaluating Innes’ perspectives, it is
clear that the credit theory of money seamlessly complements the state theory of money.

30
Innes, “The Credit Theory of Money,” 51-52.
14
2.1.2.3 Modern money theory (MMT)

The Modern Money Theory, also called the Modern Monetary Theory, offers a perspective on
the relationship between money, government, and the economy, challenging many conventional
economic ideas. It falls under the chartalist perspective. MMT is a relatively new theory which
is heavily influenced by the state and credit theories of money and builds on the insights of
economists as John Maynard Keynes (d. 1946), Alfred Mitchell-Innes (d. 1950), Georg
Friedrich Knapp (1926), Hymann Minsky (d. 1996), Joseph Alois Schumpeter (d. 1950), and
many others.31 At the core of MMT lies the understanding of how sovereign currencies function
in today’s complex economies. According to MMT, a states sovereign currency is its unit of
account, so the abstract US Dollar is the unit of account for the United States of America, but
the government’s concrete forms of money, be they specie, coins, paper notes, or bank money,
i.e. the concrete paper or bank money are merely the abstract Dollar’s money token.32 An
example for a unit of account from Islamic history could be the dinar jayshī or dinar jundī, used
to calculate the value of iqtāʿs33 in medieval Egypt.34 It is this money token which functions as
a medium of exchange, but it does not help to understand the nature of money. Similar things
may be said about the other functions as encountered in classical textbooks. MMT opposes the
market theory to explain money, and it opposes ideas that solely regard legal tender laws as
money’s explanation. Rather, tax liabilities are the most evident mechanism that brought about
money.35

MMT presents conclusions that often startle those who have been accustomed to conventional
economics thought. It notably challenges established perspectives on government finance, the
perceived perils of budget deficits, the efficacy of monetary policy, the conventional
understanding of the Phillips Curve's trade-off between inflation and unemployment, the
wisdom of fixed exchange rates, and even the pursuit of current account surpluses. MMT argues
that a sovereign government, in control of its own currency, does not work as classical
households and firms, it cannot face insolvency; it retains the ability to meet all financial
obligations using its own currency without constraint. MMT emphasizes that government
spending is not constrained by tax revenue, but rather by the availability of real resources in the
economy. If there are unused resources, such as unemployed labor and underutilized production

31
Wray, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, 1.
32
Ibid., 45.
33
Land granted to army officials in lieu of a wage.
34
Cooper, “A Note on the Dīnār Jayshī,” 317.
35
Wray, ibid., 48-50.
15
capacity, the government can increase its spending to put those resources to work, boosting
economic activity. Critically, MMT acknowledges that excessive government spending beyond
the economy’s productive capacity can lead to inflation. As the economy approaches full
employment and capacity, additional government spending can drive up demand without a
corresponding increase in supply, resulting in rising prices. MMT suggests that taxation and
other measures can be used to control inflation when necessary.

Table 2.1 : Metallism and Chartalism: Some monetary theories compared.

Approach Metallism Chartalism
Theory Orthodox State Credit MMT
Theory Theory Theory
Origin of Commodity Credit Credit Credit
money
Money Metalism Nominalism Nominalism Nominalism
concept
Main Medium of Unit of Unit of Unit of
function Exchange Account Account Account
Money Market Legal Debt Tax
dynamics theory tender laws Liabilities Liabilities

2.2 Pre-Islamic monetary debates

A discussion on the ontology of money is outside the scope of this research, however, it will be
of benefit to summarize the discussion surrounding what money actually is, and it will serve to
define money correctly. Coupled with a quick advance and development of state sovereignty,
monetary technologies and social structures, the economic and financial world experienced a
drastic change causing monetary discussions to take a very different approach in modern eras.
The contents and topics discussed in ancient and classical monetary discourse are totally distinct
from modern-day economic disputes. While modern times have seen an increase in applied
economics, the topic at hand is more related to pure economics due to its normative nature. Be
it as it is, money as a concept and its general connotations have been discussed in a variety of
cultures, both philosophically and politically. Since both philosophical and political discussions
on money and monetization fall outside the scope of this thesis, it will suffice to briefly present
the discussions, only highlighting the aspects of importance for the subject. Secondly, although

16
pre-Islamic sources are scarce, due to money being an international phenomenon, there is a
huge variety in cultures and peoples who have discussed the essence of money. Since it is
practically impossible to present all theories and ideas on money, I have sufficed with
presenting the discussions I found of most relevance to the thesis’ subject. Therefore, pre-
Islamic discussions on money will be addressed for three regions: ancient Greece, the Islamic
world, and ancient Asia.36

2.2.1 Ancient Greece

Among those who discussed and defined money – a seminal debate of which the ideas and
impacts have shaped books on money until the 19th century – are none other than the Greek
philosophers Plato and Aristotle. In the fifth and fourth centuries BCE, both Aristotle and Plato
made a concise yet idiosyncratic contribution to the discussion on what money is. In fact, both
thinkers’ ideas have resonated among academics until today.

Before diving into the thoughts of Plato and Aristotle, it is important to remind the readers that
the ancient debates have two distinct features compared to modern day discourses. Firstly,
ancient debates are dialectical of nature, which means that two persons follow a line of
argumentation in their discourse through reasoned argumentation until a point of logical
inconsistency.37 Readers of pure economic sources will be accustomed to such lengthy and
sometimes disconnected lines of argumentation, but for the applied economists, this might
come over as dull and irrelevant. Keeping this in mind while presenting their arguments and
line of thought, I have not delved into the correctness of their premises, since that is of no
benefit to the subject at hand. Instead, I will analyze the key points in their perception of money
within the two authors’ epistemic systems. Secondly, Aristotle’s philosophy – so too his notion
of money – is based on teleological and ethical arguments, the latter is nearly completely driven
out of modern-day economics save the past few decades. The approach in Islamic economics
resembles Aristotle’s teleological, i.e., function or end-use based arguments, and gives place to
vice and virtue. It is because of this that Aristotle’s ideas on money are extraordinarily important
while analyzing money, monetization, demonetization, and more generally Islamic monetary
theory.

36
While the ranges of these terms are disputed, I use these regions in the broadest sense of their meanings, as will
be shown under their respective headings.
37
van Eemeren et al., Handbook of Argumentation Theory, 25.
17
In several passages of his Politics and Ethics, Aristotle sets forth a logical explanation for the
emergence of money. Especially the passages in the first book may be regarded the basis of all
analytical work in the field of money. In the next few paragraphs, both Aristotle’s and Plato’s
concepts of money have been presented and scrutinized in relevance to their counterpart in
Islamic economics. Henceforth, this study gives no place to any elaborate discussion on
Aristotle’s or Plato’s philosophy as a whole, but rather pinpoints the seminal ideas which have
had an influence in monetary economics generally, and in Islamic economics particularly.

Aristotle's philosophical insights present money as a natural outcome of human interactions,

and he divides societal exchanges into four stages.

1. The first stage comprises the barter system, where commodities are exchanged directly
without the use of money.
2. In the second stage, surplus commodities are traded for money, which can later be
exchanged for deficit commodities when needed. Currency emerges as a natural
outcome of this essential interchange of goods and trade during this stage.
3. The third stage involves buying and selling commodities not out of need due to a deficit
or surplus of any commodity, but to accumulate a surplus of money, a practice that
Aristotle disapproves of as it involves “people taking things from one another.”
4. The fourth and final stage completely disregards the presence or intention of any
tangible commodity, focusing solely on trading money for a surplus of money, which
Aristotle calls “breeding money from money.” Effectively, this is the basis of usury. 38

Aristotle starts his discussion in Politics with the necessity of partnering to achieve the good
life people foresee; between male and female for reproduction, between ruler and subject for
security, and between two parties for trade. Trade in and of itself is not necessary for human
life, but it became so due to the inevitable social nature of humankind, eventually leading them
to settle in cities, or in Greek polis from which comes forth politics. Within the cornerstone of
a city/society, the household, there is no function for trade. Any commodity would equally be
used by any member of the household. The need and thus function for trade was born when
several households came to live together and formed a village. Only then did barter or trade of
commodities to fulfill a household’s needs come into existence. Trading one’s surplus
commodity for another desired commodity, he states, is necessary because its end goal – i.e.,

38
Aristotle, Politics, Book 1, 1255a-1257b, translated by H. Rackham (Cambridge: Harvard University Press;
London: William Heinemann Ltd., 1944).
18
fulfilling one’s needs – is equally necessary. The famous example Aristotle gives is the use of
a shoe as something to wear and as a medium of exchange. By nature, the shoe is made to be
worn, but it can also be used as a medium of exchange, for example to barter it with bread.39
One purpose is essential, the other purpose is existential. So too in the case of money: its
essential purpose and hence its use is exchange, its existential purpose, on the other hand, could
be to hoard wealth, as well as hold distributional justice of wealth.40

Aristotle, as is his custom, designates the essential purpose of any object as its natural purpose,
and other existential purposes as unnatural, as has been shown for the shoe. So too does he
designate money’s “means of exchange” function as its actual natural purpose and its purpose
to breed or hoard wealth as its unnatural and condemned purpose. The Greek word for usury is
tokos, which means to breed, give birth, hence why Aristotle sees usury as money breeding
money, which is unnatural. From trees comes fruit, from animals come offspring, from labor
comes products, but money itself does not bring forth anything, in other words, money is
‘barren’. In modern terms, money is neutral and has no effect on trade itself, it simply creates
liquidity and causes more trade to take place.41 While Aristotle has no elaborate analysis on
usury, he does condemn all forms of it based on the explanation above. Modern economic
textbooks essentially echo this idea of Aristotle, nowadays developed into the so-called
neutrality of money theory.

Clearly, the given explanation of money is based on a teleological argument, moreover, the
existential purpose of hoarding wealth, distribution of justice, etc., is the subject of ethics. This
is beyond certainty a definition based on telos, instead of a definition of what exactly money is.
Furthermore, Aristotle sees money as a natural rather than a nominal development in human
history – in stark contrast to Plato. It is due to the necessity and needs of humans as a social
being that money had to come into existence. Aristotle hints to some commodities being more
appropriate for being money, such as metals,42 while according to his theory, every commodity
could be used as a means of exchange and standard of measurement, i.e., money or a form of
currency.43 In modern terms, Aristotle represents the metallistic theory of money – in contrast
to his predecessor, mentor, and teacher, Plato.

39
Aristotle, Politics, Book 1, 1257a.
40
Scott Meikle, “Aristotle on Money,” Phronesis 39/1 (1994): 26-44.
41
Skidelsky, Money and Government The Past and Future of Economics, 23.
42
By this, Aristotle was foreshadowing parts of economic works and textbooks related to homogeneity, divisibility,
portability, relative stability of value, i.e., the properties of money.
43
Aristotle, ibid., 1257b.
19
Plato does not offer as much material to analyze as Aristotle, however, he does take an opposite
stance with regard to Aristotle on the nature of money. According to the former, money is a
“symbol” devised for the purpose of facilitating exchange, hence why the foundations of the
state theory of money is found in his works. Plato’s hostility towards the use of gold and silver
points at an antimetallist view with regard to money.44 Both the metallist and antimetallist (or
cartelist) theories cannot be attributed to the two philosophers since that would be both
anachronistic and oversimplifying modern theories. Plato furthermore notes that any
commodity has separate use and exchange values.45 It is not far-fetched to note that Aristotle
took up this idea from his teacher. Both classical and Islamic economics have echoed the ideas
of Aristotle in their works for centuries.

2.2.2 Ancient India and China

The history of money in ancient India and China begins very early on, it is said that commodity
money was used somewhere around the fourth millennium BCE. While India and China are
two separate areas of study, I have grouped them together due to the lack of archeological and
academic literature on primitive forms of money. Nonetheless, at the other side of the Old
World, the Chinese philosopher Confucius (551-479 BCE) was as influential as Aristotle and
Plato were in the West. Naturally, like the two Greek philosophers, he discussed similar issues
and formulated influential premises for all kinds of philosophical and pragmatic debates. On
the debate at hand, there is a specific paragraph which shows Confucius’ general opinion on
what money is:

These three kinds of money cannot protect you against cold if you hold them,
nor can they satisfy you against hunger if you eat them. By the use of them,
however, the ancient kings guarded wealth, controlled human affairs, and
equalized the world. Therefore, money was called standard, which means
that it makes the rise and fall of price not affect the standard itself.46

The three kinds of money Confucius is talking about are pearl, gold, and copper, in this specific
order because the main function of money – according to Confucius – is to serve as a standard

44
Schumpeter, History of Economic Analysis, 53-54.
45
Thomas Noutsopoulos, “The Role of Money in Plato’s Republic , Book I” Historical Materialism 23/2 (2015):
131-156.
46
Huan-Chang, The Economic Principles of Confucius and His School, 435.
20
of value.47 Apparently, Confucius’ environment attached value to these three commodities,
making them subject to becoming stores of value. The next chapter discusses the functions of
money, so here I suffice with mentioning two points: the first is that Confucius makes mention
of the fact that the three goods cannot be utilized by themselves to meet basic necessities but
serve other purposes. One can easily see the resemblance between Aristotelian and Confucian
teleological explanations of money, yet Confucius is less hostile towards its secondary and
existential purposes than his colleague Aristotle. Secondly, it should be mentioned that other
commodities have been used as mediums of exchange and standards of value. While grain
claims the title of being the standard of value and the medium of exchange, salt, silk, and tea
have claimed the title of currencies in that era.48 Even during later times, in the era of Marco
Polo (1254-1324 CE), cake-formed lumps of salt were used as – in Marco Polo’s words –
‘smaller money’, in contrast to gold as ‘greater money’.49

2.2.3 Pre-Islamic Arabia

The Arabian Peninsula is located in the center of three major continents: Europe, Asia, and
Africa. It borders important biblical regions like the Great Levant and Mesopotamia, and
significant historic civilizations like those of the Romans, and Persians.50 The Arabian
Peninsula itself was home to various Yemeni Kingdoms who established trade routes within
the Peninsula. Moreover, the local Arabs had established various agreements with neighboring
regions such as Palestine, the Yemen, Iraq, Syria, and Ethiopia, facilitating safe trade routes
and a favorable business climate.51 The local business bazaars set up in Mecca, the city of
Abraham’s Ka‘ba, and in the Yemen, the maritime zone for commercial trade, show that the
Peninsula’s main economic activity was based on trade.52

During the pre-Islamic era, two units of weight, mithqāl (aka dīnār) and dirham, were used to
weigh precious things including gold and silver.53 The words dinar and dirham were also used
for golden and silver coins. Arabs used both dinar, the Byzantine currency denarius, and
dirham, the Persian currency diram. When Islam came, the Prophet did not change the weights
that were circulating in Mecca. He simply approved the status quo with some changes which

47
Ibid., 436.
48
Quiggin, A Survey of Primitive Money: The Beginnings of Currency, 192.
49
Polo, The Travels of Marco Polo [The Venetian], 191.
50
Sadr, The Economic System of the Early Islamic Period: Institutions and Policies, 3-5.
51
Ibn Saʿd, Al-Ṭabaqāt Al-Kubrā, I, 75-78.
52
Sadr, The Economic System of the Early Islamic Period: Institutions and Policies, 4-5.
53
Al-Balādhurī, Futūḥ Al-Buldān, 453.
21
are discussed below. The Arabian Peninsula had a fairly advanced society in the southern
district in the region of modern Yemen. The Kingdom of Shabwa (Hadhramawt) was known to
mint several coins in the pre-Islamic Arabian Peninsula.54 A fairly recent discovery shows that
Ancient kingdoms in the Yemen and Oman used metal coins minted from copper,55 coupled
with the knowledge that pre-Islamic Arabia used both the Byzantine golden coin and the Persian
silver coin, the Prophet’s adoption of a bimetallic system is understandable at least.

2.3 The history of money

In accordance with the classical understanding of the evolution of monetary systems, early
societies characterized by primitive modes of subsistence, such as hunter-gatherer communities
and nomadic groups, lacked the development of a formal monetary system. Instead, their
economic transactions primarily relied on barter, particularly in situations where the need for a
specific commodity arose, and a surplus commodity was exchanged to satisfy that need. This
barter system proved functional within the context of these rudimentary economies. However,
as communities settled and advanced in terms of specialization, the barter system began to
present several inherent challenges.

Foremost among these challenges were the issues of the double coincidence of wants,
indivisibility of commodities, transportation, as well as concerns related to storage and deferred
payment.56 The barter system, or direct exchange, became progressively more cumbersome as
individuals within a society specialized in distinct professions due to the limited liquidity of
commodities in general. Consequently, to address these challenges, a form of currency that was
highly liquid, easily storable, divisible, and durable was introduced to fulfill the role of money.
This transition marked the shift from direct exchange of commodities to indirect exchange: the
exchange of a commodity for money and vice versa.

Throughout the history of human civilization, various objects have been employed as forms of
currency. However, metals emerged as the most ubiquitous and widely adopted commodities
to serve this purpose across different societies worldwide. The first recorded usage of metals as
a medium of exchange can be traced back to Babylonia during the second and third millennia
BCE. This type of monetary system is commonly referred to as a metal-weight or bullion

54
Sadr, ibid., 3-4.
55
L. Chiarantini - M. Benvenuti, “The Evolution of Pre-Islamic South Arabian coinage: A metallurgical analysis
of coins excavated in sumhuram (Khor-Rori, Sultanate of Oman),” Archaeometry 56/4 (2014): 625-650.
56
Şahin, Iktisadi ve Fikhi Yönleriyle Para Üretimi, 29-32.
22
economy, given that money did not take the form of standardized coins; instead, each unit of
gold or silver was weighed and valued individually. An illustrative instance of a metal-weighted
economy can be found in the historical context of the Scandinavian countries during the Viking
era.57

The Lydians, situated in Anatolia during the seventh century BCE, were pioneers in the
formalization of coinage, where coins were stamped to indicate their weight and/or fineness.
This innovation marked the transition from bullion economies to coin economies, collectively
referred to as metallic economies or metallism. This transition was not of great importance
economically speaking, as stated by Keynes, because it is merely a change of form and not of
substance.58 The Lydian empire notably adopted a bimetallic system based on gold and silver
and issued coins known as electrum.59 Given the substantial value of electrum, estimated to be
equivalent to around ten sheep per coin, it is highly probable that these coins were initially
introduced by the government for the convenience of paying mercenary wages. 60 Over time,
these coins began to circulate among traders and gained widespread acceptance as a medium of
payment and a means of settling debts, thereby evolving into a fully-fledged coin money system
in the modern sense.

While a variety of metals, including copper, tin, and bronze, have been employed for coinage,
gold and silver have consistently held prominence throughout history. Consequently, golden
and silver coins have historically played a central role in metallic systems, solidifying the
concept of commodity money as the foundation of these monetary eras.

The subsequent stage in the evolution of monetary systems involves the utilization of paper
currency that represents a predetermined stored value. These asset-backed paper monies are
called fiduciary money. Throughout the historical and archaeological records worldwide, there
is a considerable presence of paper notes which may resemble paper money. Nevertheless,
distinguishing which among these notes qualifies as true paper money can be a challenging
endeavor. In the context of this thesis, I place the focus on negotiable promissory notes as the
equivalent of paper money. The distinguishing feature of a negotiable note, as opposed to a
non-negotiable one, is its anonymity, meaning that it is not restricted for the use of a single

57
Kershaw, “An Early Medieval Dual-Currency Economy: Bullion and Coin in the Danelaw,” 3.
58
Keynes, “A Treatise on Money,” 10.
59
Britannica, “Money - Metallic money,” accessed: May 28, 2022,
https://www.britannica.com/topic/money/Metallic-money#ref362599.
60
Cook, “Speculations on the Origins of Coinage,” 261.
23
individual. Therefore, negotiable promissory notes bear a closer resemblance to actual money
compared to their non-negotiable counterparts, which primarily represent payable claims rather
than serving as a form of currency.

The first recorded account for the usage of paper money is by the seventh century Tang dynasty
in China. The impracticality of handling heavy copper coins in large-scale transactions
prompted merchants to issue paper notes representing a specific amount of copper coins, with
the actual coins securely stored in a deposit. Although the usage of such paper money persisted
for an extended period, it remained localized and specific to particular transactions, coexisting
with copper coins, which retained their status as the nationally accepted form of currency.61 A
variety of similar uses has been recorded by historians; Ibrāhīm ibn Ya‘qūb Al-Ṭarṭūshī talks
about pieces of cloth with a fixed exchange rate to silver being used in tenth century Prague,62
Marco Polo describes how the Chinese monarchy made ‘the barks of trees to pass for money’,63
the Ilkhanate state had started the emission of paper currency in 1294,64 and even the crusaders
have developed similar monetary instruments in the form of debt-transferring.65 Whether these
papers are actually money or mere claims of debt remains partly a subject of discussion.

The transition from such papers to actual banknotes began in early seventeenth-century Europe.
Goldsmith bankers, potentially driven by concerns related to gold inflation and convenience,
started issuing notes payable to the bearer, assuming responsibility for honoring these notes
themselves rather than relying solely on deposited funds. Another pivotal development was the
emergence of fractional-reserve banking, whereby banks, aware that not all depositors would
simultaneously demand their funds, began lending and accruing interest on deposited monies.
This transformation marked a shift from banks serving as passive custodians of wealth to
interest-based commercial banks. Given the absence of government-imposed monetary
regulations during the time, insolvency and bankruptcy became commonplace, leading to the
eventual establishment of central banks toward the end of the century.

In 1683, the Amsterdamsche Wisselbank limited depositors from taking their initial coins,
effectively starting a pure fiat standard.66 From the eighteenth century onwards, driven not only

61
Patricia Buckley Ebrey et al., East Asia: A cultural, social, and political history (Boston: Houghton Mifflin
Company, 2006), 156.
62
Jankowiak, “Dirhams for Slaves,” 8.
63
Polo, The Travels of Marco Polo [The Venetian], 97.
64
Walter J. Fischel, “On the Iranian Paper Currency (Chāw) of the Mongol Period,” Journal of the Royal Asiatic
Society of Great Britain and Ireland, 4 (July 18, 1939): 601.
65
Usher, “The Origin of the Bill of Exchange,” 569.
66
Quinn - Roberds, “How Amsterdam Got Fiat Money,” 2.
24
by government shortages of silver and gold but also by a desire for monetary control, an
increasing number of countries introduced fiat currencies, often initially promised to be
convertible into specie. In 1944, the Bretton Woods Agreement was enacted by forty-four of
the Allied Countries, granting fiat currencies’ convertibility with gold through the U.S. dollar.
However, in 1971, this agreement was made obsolete by several of United States’ monetary
regulations to fight inflation, consequently turning the world economy to a free-floating
currency system. This transformation rendered fiat currencies, which were initially convertible
with tangible bullion, as complete virtual units of account devoid of backing by any physical
commodity. Consequently, the value of fiat currency became decoupled from reality, endowing
fiat money with a virtual value akin to that of a unit of account.

Fox and Ernst made a useful and insightful periodic categorization of money as a monetary
institution. According to the authors, a five-tier categorization of monetary development
occurred in Western history since the introduction of coinage.

1. Naturalistic metallism: In this earliest phase, money was valued for its intrinsic worth.
Various metals, such as gold and silver, were used as a medium of exchange due to their
inherent value. The value of money was closely tied to the amount of precious metal it
contained, and this system laid the foundation for early monetary transactions.
2. Nominalistic metallism: Building upon the foundation of naturalistic metallism, this
period introduced the concept of nominal value. While gold and silver coins continued
to be in circulation, new types of coins were introduced, often made from metals like
bronze and copper. These coins were assigned a nominal value that may not have
reflected the intrinsic worth of the metal.
3. Bank money: Transitioning away from reliance on physical metals, the bank money era
saw the emergence of financial instruments like letters of credit and debt transfer. Banks
began issuing notes that represented a promise to pay the bearer a certain amount of
money. These notes were more convenient for large-scale transactions and provided a
bridge between physical coinage and paper money. Bills of credit were examples of
these early forms of bank money.
4. Paper money and gold standard: Private banks, often with government-granted
monopolies, issued paper currency that was backed by a specified amount of gold held
in reserve. An example of this system was the pre-1971 United States dollar, which
could be exchanged for a fixed amount of gold. The gold standard provided stability to
the monetary system and maintained confidence in paper currency.
25
 5. Fiat money: In the fiat money era, money is no longer linked to physical commodities
like gold or silver. Instead, its value is determined solely by government decree or fiat.
This marked a significant departure from the earlier periods when money had intrinsic
or tangible backing. Most paper currencies in use today fall into this category, as they
have no inherent value and are not directly exchangeable for a physical commodity. The
post-1971 United States dollar, after the abandonment of the gold standard, is a notable
example of fiat money.67

After the metallism era, the realm of monetary development was dominated by Western regions,
with Amsterdam and London at the center. In fact, the changes in any other region besides the
Western world has been neglected in academic literature ever since due to its trivial
contributions to monetary development. A small amount of researchers have attributed seminal
innovations to the Islamic world, examples are early forms of bills of credit and proto-
corporations called the suftaja (pl. safātij) and muḍāraba respectively. However, mainstream
economics and economic history – especially in the English language and the Western world –
were not concerned with the developments in the East. Although the Islamic world has seen a
similar transition in monetary development through the ages, most tiers were not fully
developed nor adopted because of its secondary position in the hierarchy of monetary
development. Nevertheless, Islamic economics in general and Islamic jurisprudence in
particular have witnessed the transition and transformation of money as a phenomenon. The
next section presents a short history of money in Islam followed by a categorization for the
types of money as presented by Muslim economists and jurists.

2.4 Money in Islamic history

During the pre-Islamic era in the Arabian Peninsula, the region had established a bimetallist
monetary system influenced by neighboring empires, primarily utilizing the golden dinar from
the Byzantine Empire and the silver dirham from the Sasanian Empire. 68 Despite the presence

67
Fox - Ernst, Money in the Western Legal Tradition: Middle Ages to Bretton Woods, 9. The book consists of five
sections, each of which corresponds to the relevant stage in monetary development.
68
According to the historian Al-Maqrīzī, the Prophet Adam was the first person to use the dinar and dirham, cf.
Al-Maqrīzī, “Al-Nuqūd Al-Qadīma Al-Islāmiyya.” Subsequently, several authors argued that the history of
money in Islam starts with the first human based on a deductive reasoning of the verse “and Allah taught Adam
the names of all”, cf. Uslu, “İslâm Hukukunda Para Birimleri”; Orhan, “İslamiyet, İslam Tarihi ve İslam
İktisadı Nokta-i Nazarından Para.” Indeed, the claim that Adam possessed knowledge of the names of all things
up until modern times and beyond lacks both archaeological and anthropological evidence. Asserting such a
notion could be considered a farfetched and audacious declaration, particularly since it appears impractical for
Adam to have knowledge of concepts such as blockchain or contemporary technologies, which hold no
26
of these gold and silver coins, the Arabian markets were not entirely monetized. Much like
many early societies, various commodities such as cattle, with a particular emphasis on camels
due to their regional significance, along with barley, wheat, salt, and local dates, served as both
standards of measurement and mediums of exchange. In this context, the wergild system in
these regions, known as diya in Arabic, was often quantified in terms of camels. Additionally,
religious oaths and expiations, referred to as nadhr and kaffāra, were similarly expressed in
camels or cattle.69 However, it is essential to note that these compensations, whether in the form
of cattle or camels, could also be readily settled by their equivalent values in other established
monetary units.

A fairly recent discovery shows that ancient kingdoms in the Yemen and Oman used metal
coins minted from copper.70 The Prophet Muḥammad approved the status quo and made no
significant changes to the Byzantium and Sassanian currencies, nor significantly changed the
money concept. However, he did implement some fundamental changes in the market of
Medina.71 For a long time, gold and silver were the main forms of exchange and unwritten legal
tenders throughout the Islamic world, with the copper fulūs only fulfilling a supportive local
role. Debates regarding the zakat liability for fulūs, the monetary and legal status of the suftaja,
the fluctuations in the value of gold and silver, the standardization of the silver dirham and other
money-related discussions have occupied Muslim jurists since early periods. These and similar
debates surrounding money and monetization will be discussed later.

The changes made to coinage under Islamic rulers primarily focused on form and
standardization. In the year 640 CE/18 AH, the second CaliphʿUmar ibn Al-Khaṭṭāb (r. 634-
644 CE) introduced Islamic phrases, such as al-ḥamdu lillāh, Muḥammadun rasūlullah, and lā
ilāha illallāh, to the Byzantine and Sassanian coins that were being minted within the Islamic

relevance to his existence. This assertion might also appear contrary to the wisdom of Allah in the act of
creation. Furthermore, the interpretation of the verse in question is commonly understood to be not without
restrictions. The prevailing understanding is that “the names of all” pertains to whatever was known during the
specific era in question. Regarding Al-Maqrīzī's reference to dinar and dirham, it could conceivably be
interpreted as referring to gold and silver, or perhaps even the abstract concept of money. However, implying
the coined dinar and dirham would result in the implication that Adam possessed knowledge of everything,
which might lead to the presumption that the history of any object or concept began with Adam, which is a
notion not commonly held. In essence, this perspective underscores the importance of contextual interpretation
when approaching religious texts and the potential limitations of drawing direct parallels between ancient
scriptures and modern concepts.
69
One needs only to look at the various stories surrounding the Prophet Muhammad’s grandfather and father, ʿ
ʿAbd Al-Muṭṭalib and ʿAbdullah, respectively. Cf. Guillaume, The Life of Muhammad, 64, 66-68.
70
Chiarantini - Benvenuti, “The Evolution of Pre-Islamic South Arabian Coinage: A Metallurgical Analysis of
Coins Excavated in Sumhuram (Khor-Rori, Sultanate of Oman),” 625-27.
71
Kallek, Sosyal Servet İslam’da Yönetim-Piyasa İlişkisi, 132-33.
27
Caliphate. In the final years of his reign, he standardized the dirham coins. Subsequently, the
third Caliph ʿUthmān ibn ʿAffān (r. 644-656 CE) minted coins bearing the inscription Allahu
akbar. During the reign of Mu‘āwiya ibn Abī Sufyān (r. 661-680 CE), the weight of the dirham
was reduced in order to gain popularity among the public. Additionally, he introduced the first
image on Islamic coins, depicting a sheathed sword. It is worth noting that these earlier changes
were somewhat limited in scope. However, it appears that the first gold and silver coins minted
by Muslims were produced under the Umayyad Caliph ʿAbd Al-Malik ibn Marwān (r. 685-705
CE). These coins adhered to the weight standards established during the reign of ʿUmar ibn Al-
Khaṭṭāb. Over the centuries that followed, various coins with differing weights and shapes,
often made from precious metals such as gold and silver, were minted and circulated throughout
the Islamic territories.72

Gold and silver coins held a predominant position in the monetary systems of the Muslim world,
serving as the primary mediums of exchange. However, for smaller denominations, various
metal coins, distinct from gold and silver, were employed. These coins were minted from a
variety of metals, and they were commonly referred to as fals (plural: fulūs) by the Arabs.
Interestingly, when the areas conquered from the Byzantines came under Muslim control, rather
than utilizing existing copper fals, Muslims initiated the minting of new fals. The first of these
coins was struck in Damascus in 638 CE. It is worth noting that these coins were not universally
recognized as a symbol of sovereignty, which led to a lack of centralized control over their
production. Essentially, anyone was free to mint fals, and it was left to the discretion of the
public whether or not to accept them. Due to this decentralized minting, fals coins exhibited
variations in terms of weight, size, and value across different provinces. 73 They were typically
minted from materials such as copper, iron, nickel, or various alloys that included metals like
tin and lead. Given their predominant use in small transactions, their overall impact on the
economy was limited, and they had a more confined circulation compared to dinars and
dirhams. Fals were recognized as valid currency primarily within specific regions rather than
throughout the entire Islamic world.74

For a very long time, from the Umayyad and Abbasid Caliphates to the late Ottoman Empire,
the bimetallic system with copper coins in the supportive role stayed intact. There have been

72
Akyıldız, “Para,” XXXIV, 163; Al-Maqrīzī, “Al-Nuqūd Al-Qadīma wa Al-Islāmiyya,” 4-5.
73
Güney, “Islam Hukukunda Para Kavramı ve Paranın Yeri,” 34-35.
74
Akyıldız, “Para,” DIA, XXXIV, 164; Artürk, “Fels,” DIA, XII, 309-11.
28
some experiments throughout the centuries with other forms of money, however none have
proved to be successful. In the 20th and 21st centuries, the monetary developments followed the
Western world, giving Islamic legal decisions only a secondary role in the acceptance process
of paper and bank money.

29
 3 THE DEFINITION OF MONEY

The word money is derived from the Latin noun monēta,75 meaning “a place where money is
coined, mint” which in turn stems from the same word’s proper name Monēta, a title of the
ancient Roman Goddess Juno, ultimately derived from monēre “to record, to remember”.76 Both
the currency and the place where coins are minted obtained their Latin names due to its location
near the temple of Juno Monēta, Juno the recorder and protector, overlooking the Forum
Romanum from Rome’s Capitolium. There is a good possibility that the minted coins were
stored inside Juno Monēta’s temple, as historically, temples were used as storehouses for
valuable goods.77 The temple was built in 344 CE, but money and monetary debates existed
centuries prior to that. In modern economics, money is mostly described by its functions and
its properties.

3.1 Money in Islamic literature

Commonly used terms connoting money in Islamic literature are the Arabic words naqd (pl.
nuqūd [‫ نقود‬- ‫)]نقد‬, thaman (pl. athmān [‫)]ثمن – أثمان – أث ُمن‬, fals (pl. fulūs [‫)]فَ ْلس – فُلوس‬, dinar (pl.
danānīr ]‫)]دينار – دنانير‬, and dirham (pl. darāhīm [‫)]درهم – دراهيم‬. Before a discussion about
monetization can be initiated, the terminology used for money should be mapped out clearly.
Therefore, different terms used for money in Islamic economics are discussed below.

3.1.1 Thaman

The lexical meaning of the word thaman simply is the (exchange) price or value of a subject-
matter.78 In legal scenarios, the term refers to an object assignable to a legal personality
(dhimma) which is exchanged for a commodity (mabīʿ).79 Thaman has a wide scope within
Islamic jurisprudence, however, it discerns itself from other commodities by being the
monetary value of the exchange happening. In a commercial contract, it discerns itself from the
exchanged commodity because it functions as a monetary value similar to a currency unit,
contrary to the mabīʿ. The market price of a commodity (mabīʿ) is called thaman al-mithl – but

75
Mawer - Skeat, A Concise Etymological Dictionary of the English Language, 333.
76
De Vaan, Etymological Dictionary of Latin and the Other Italic Languages, 387.
77
Ustaoğlu - İncekara, Faiz Meselesi: Tarihte Örnek Uygulamalar, 23, 24.
78
Wizāra Al-Awqāf wa Al-Shuʾūn Al-Islāmiyya Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XV, 25.
79
Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-Mukhtār, VII, 392; Wizāra Al-Awqāf wa Al-Shuʾūn Al-
Islāmiyya Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XV, 25.
30
Islamic law allows commodities to be traded for a lesser or higher value too. The value that has
been stipulated in the contract is called the thaman al-musammā (stipulated price) which may
or may not equal the market price, thaman al-mithl.

While describing the concept of thaman, two more terms need to be evaluated. The first is the
Arabic word qiyma (‫ )القيمة‬corresponding to the English word value. The qiyma is the actual
value of a specific subject, no less and no more, at that specified moment and place.80 This
definition in and of itself invites for discussion, for how can one truly define something’s value?
Either way, the qiyma is the actual value of a subject-matter and hence equals the thaman al-
mithl because the market price is the actual value of the commodity. Such a definition calls for
objections, especially in price bubble scenarios. Both the supply side and the demand side may
be influenced by external factors, in turn causing a significant deviation of asset prices from
intrinsic values, the Dutch tulip mania of the 17th century is a prime example of this
phenomenon. In any case, the merits of a distinction between the price and the actual value is
seen in the laws regarding indemnity, but that is outside the scope of this study.

The second term is siʿr (‫)السعر‬, which is the equivalent of “price” in English. Since this word is
mostly used for the price of the seller, it may be equal to the qiyma, but also more or less. The
origin of the word siʿr comes from the rise and exacerbation of fire; the meaning of price was
derived from rise and exacerbation as the prices rose and increased in the markets until it
became the commonly used word for price.81 From an Islamic jurisprudent viewpoint, the term
siʿr is not of much importance.

3.1.2 Naqd

The word naqd has four different lexical meanings, which can be briefly summarized as
follows:

(1) As a transitive verb; separating the good from the bad, especially silver and golden coins
(dirham and dinar).
(2) As a transitive verb; cash payment, spot payment or debt payment, i.e., the antonym of
deferred payment.

80
Ḥaydar, Durar Al-Ḥukkām Sharh Majalla Al-Aḥkām, I, 223; Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-
Mukhtār, VII, 117.
81
Al-Rāghib Al-Isfahānī, Mufradāt Alfāẓ Al-Qurʾān, 411.
31
 (3) As an intransitive verb; exchanging a commodity for money.82
(4) As a noun; ores such as gold and silver crafted and minted into coins.83

The first lexical meaning of the word is generally accepted as the origin and point of derivation
for the other three meanings, of which the latter two derived from the first. In many classical
Arabic dictionaries, naqad (‫ )النَقَد‬is the name of a small sheep or goat with an ugly face and short
legs living in Bahrain and the Hejaz region.84 Money with a sheep/goat image stamped on one
side of the coin was used in the Hejaz region of the Arabian Peninsula, it is possible that the
Arabs used the word naqd in reference to the naqad (sheep/goat) for money. This seems like a
plausible explanation, since similar coins fitting that description were in circulation in the
Roman Empire,85 in particular in Thrace, originally minted in the ancient Greek city of Ainos
(Enez) – now in Turkey – between the fifth and the first centuries BCE.86

The term naqd and its derivatives are not mentioned in the Qur’an, and only appear sporadically
in narrations attributed to the Prophet Muḥammad. The main reason for this is that instead of
the word naqd, the words dinar and dirham – which expressed minted coins – were used in the
Arabian Peninsula. The word naqd is only mentioned once in the hadith literature in the
meaning of currency. In the work maʿrifa al-sunna wa al-āthār by Al-Bayhaqī (d. 458/1066),
the expression lā naqda bi aydīhim, which means "they have no money", is quoted in a story
found in other hadith sources. In any case, the concept of naqd is not mentioned in the
foundational texts of the Qur’an and Sunnah, which constitute the basis of Islamic law and its
rulings, although the lexical meaning of the concept of naqd was known, its use as currency
was very rare in the legislative period. It is safe to say that the concept of naqd was not defined
by Allah or the Prophet Muḥammad himself, leaving the interpretation of its conceptual
dimension to the legal reasoning of Muslim jurists.

It is clear that the terminological meaning of naqd in Islamic law is not much different from the
etymological meaning of currency. However, although the concept of naqd is frequently used
– especially in classical sources – classical Muslim jurists did not come up with a specific
definition for the term. The most propound arguments for such a claim are that there were no
currencies other than gold and silver in circulation at the time, that only gold and silver were

82
Wizāra Al-Awqāf wa Al-Shuʾūn Al-Islāmiyya Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XXXXI,
172-73.
83
Shirbāṣī, Al-Muʿjam Al-Iqtiṣādī Al-Islāmī, 466-67.
84
Ibn Manẓūr, Lisān Al-ʿArab, III, 426.
85
Under the name of Tetradrachm Antiadas.
86
Classical Numismatic Group, “Tetradrachm (Antiadas) - Ainos - Numista.”
32
“created” as money, that the Prophet Muḥammad himself only spoke of gold (dinar) and silver
(dirham) as money, and that no other commodity is qualified to be money. However, it seems
that proponents of a monetary concept limited to gold and silver neglect monetary assets which
have been around since the first and second centuries after the Prophet Muḥammad. Prime
examples are the fals, suftaja and ṣakk (pl. ṣukūk). These instruments are the subject matter of
Chapter Four.

3.1.3 Gold and silver

It is evident that trade played a crucial role in the pre-Islamic Arabian Peninsula's economy.
For any transaction to occur, a reliable medium of exchange was necessary. The regions of
Arabia and its neighboring areas were either directly under the Byzantine or Persian Empires'
sovereignty or were influenced by them. Consequently, the currencies in these regions were the
dinar and dirham, both of which were widely accepted in the Arab economy. Political power,
as exercised by the Byzantine and Persian Empires, contributed to the reliability of these means
of exchange in the lands under their control. The Persians predominantly traded in dirhams,
while the Romans used dinars, and both of these currencies played a significant role in the Arab
trade.

The dinar and dirham have been used as synonyms to golden and silver coins throughout
Islamic history. Golden and silver coins are considered the basis for money in Islamic law.
While the legality of monetary instruments have been discussed in length by many Muslim
jurists, this is not the case for gold and silver. Both are mentioned in the Qur’an and Sunnah.
Although golden and silver coins have been minted under various names due to different
political, geographical and economic reasons throughout history, I have considered it
appropriate not to include them separately in my thesis, the focus will remain on their broader
role as the foundation of money in Islamic economic history.87

3.1.3.1 Dirham

The dirham, dirhem or dirhm was a silver coin and is still a currency in many Arab countries.
It was also used as a unit of weight. The word dirham entered from Greek into Persian and from
Persian into Arabic. In Greek, drachma (δραχμή) is derived from the Greek verb drassomai

87
For some of the coins minted in silver and gold, such as dirham and dinar, cf. Al-Ush, Al-Nuqūd Al-ʿArabiyya
Al-Islāmiyya.
33
(δράσσομαι), meaning to grasp. Derivatives of the same word meaning handful or handle
appear in some writings during the Mycenean period of 1750-1050 BCE. Originally a drachma
was equivalent to six oboloi (metal rods, lit. skewers), equivalent to the amount of a pinch or
palm, used as a unit of money and weight as early as 1100 BCE. 88 It was the standard silver
coin in most ancient Greek mints, and the obol was used to describe a coin that was one-sixth
of a drachma. The idea that drachma derives from the word fist was recorded by Heraclides of
Pontos (387-312 BCE). The drachma was minted at different weight standards in different
Greek mints. The most widely used standard was the Attic or Attic unit, which weighed just
over 4.3 grams. The word dirham (dirhim or dirhaam in some dialects89) entered the Arabic
language; in time, the Persians changed the word to drahm and later into derham or deram and
utilized it as both a currency and a weight unit.90 Eventually, the Arabic language adopted the
Persian derham and Arabized it to dirham.

Since the Arab society got introduced to the word dirham through Persian, many classical
dictionaries and lexicons note that it is of Persian origin rather than Greek. 91 During the reign
of the second Caliph ʿUmar ibn Al-Khattāb, the varieties of dirhams that came from the
Sassanid Empire multiplied and their weights differed. Since dirhams were traded based on
their weight in commercial transactions, the difference in weights was not of much importance
to the merchants. However, it is important to know how many grams of silver one dirham equals
in order to determine the threshold value for zakat liability, wergild rates and some similar
Shariah provisions. It was during the reign of ʿUmar that a 2.975 gram Sassanid dirham was
minted for the first time by a Muslim government.92 ʿAbd Al-Malik ibn Marwān (d. 76/695)
was the first caliph to mint Islamic dirhams. Numismatists record that the oldest pure Islamic
dirham found to date was struck in Armīniya in the year 78 AH/698 CE.93

3.1.3.2 Dinar

The word dinar was transmitted into Arabic as the name of the currency used in the Byzantine
lands. The denarius currency was the standard Roman silver coin introduced in 211 BCE,

88
David M. Schaps, The Invention of Coinage and the Monetization of Ancient Greece, first ed. (Ann Arbor:
University of Michigan Press, 2004), 83.
89
Ibn Manẓūr, Lisān Al-ʿArab, XII, 199.
90
Philippe Gignoux - Michael Bates, “Dirham,” Encyclopaedia Iranica, accessed: February 9, 2022,
https://www.iranicaonline.org/articles/dirham#pt2.
91
Ibn Sīda Al-Mursī, Al-Mukhaṣṣaṣ, III, 298.
92
Al-Maqrīzī, “Al-Nuqūd Al-Qadīma wa Al-Islāmiyya,” 4-5.
93
Al-Ush, Al-Nuqūd Al-ʿArabiyya Al-Islāmiyya, 31.
34
during the Second Punic War, and remained as legal tender until the reign of Gordianus (238-
244 CE), when it was gradually replaced by the Antoninianus. It continued to be minted in very
small quantities, probably for ceremonial purposes, until the end of the third century CE.94

The denarius was originally derived from the Latin word dēnī for "containing ten," as its value
was 10 assēs (copper currency). The word for money in many languages is derived from the
Latin denarius: examples are the Italian denaro, the Slovenian denar, the Portuguese dinheiro,
the Spanish dinero as well as the Arabic dinar.

Classical Arabic dictionaries and lexicons trace the word dinar to the Persian language and have
a near unanimous consensus that the Arabic word dinar is borrowed from Persian. There is
however some discussion as to whether it derives from a name called dinnar in Persian or from
the composition of din and ar, a sentence meaning "religion brought it".95 In any case, I can say
that the words dinar and dirham originally came from the Greek language and entered the pre-
Islamic Arabian Peninsula and Arabic language through Persian. In turn, the Prophet
Muḥammad used these words and monies without reservation.

3.1.4 Fals

The word fals in modern times has come to cover all types of money, especially coins and paper
money. The root letters of the word fals have the meaning of running out of money and a person
who has no property.96 It is clear that the words iflās and muflis (going bankrupt and a broke
person respectively) in Arabic are derived from this root meaning. The earliest written use of
the word fals meaning moneyless is from the poet Abū Qilāba Al-Ḥārith ibn Ṣaʿṣaʿa ibn Kaʿb.97
According to the general trend, the word fals has passed from the Latin word follis to the Arabic
language.98 Although some sources incorrectly indicate that the money called follis was first
minted in 294 CE, it was not until the fifth century CE that the copper follis coins came into
force through the coinage reforms of the Byzantine ruler Anastasios I in 498 CE.99

94
Crawford, Coinage and Money Under the Roman Republic, 55-60.
95
Al-Rāghib Al-Isfahānī, Mufradāt Alfāẓ Al-Qurʾān, 318; Al-Zabīdī, Tāj Al-ʿArūs min Jawāhir Al-Qāmūs, XI,
314.
96
Ibn Manẓūr, Lisān Al-ʿArab, VI, 165.
97
Abū Qilāba is the father of Qilāba bint Al-Hārith, the sixth-generation grandmother of the Prophet Muhammad.
Abū Qilāba is known as the oldest poet of the Huzayl region, and he used the word fals in one of his poems to
mean bankrupt and penniless. Although there is no information about the date of his death, by counting a
generation as 40 years, I can say that he lived in the middle of the third century CE.
98
Artürk, “Fels,” DIA, XII, 309-11.
99
Grierson, Byzantine Coinage, 1-2.
35
On the other hand, there are some sources that state that the word fals passed from Arabic to
European languages and was adapted according to their own dialects in the form of pence.100
Pence, which is the plural of penny in English, is a silver currency used by ancient Anglo-Saxon
nations since 785 CE.101 The word pence is said to be etymologically based on Germanic
languages, not Arabic, and in my opinion it stands as a more consistent view. According to
those who claim that the word pence is derived from the word fals, it is possible that the king
of Mercia, Offa, who cut the pence currency, imitated the gold dinar used by the Arabs and
minted the same currency used in the time of Hārūn Al-Rashīd (d. 809 CE) together with the
Arabic writings, so it is likely that he was aware of the fals money. This dinar-like British gold
coin did not circulate as money, it was used on ceremonial occasions and given as gift to
members of higher societies. The pence, on the other hand, was minted as a silver currency and
circulated in the market as such; in fact, it has even been used as money until today. The main
shortcoming of those who make this claim is that they ignore the fact that the word pence started
to be used in the 14th century, and that the word pence derives from the word penny, thus
weakening the assertion that the pence was derived from Arabic due to phonetic consistency.

The terminological meaning of the word fals is defined as coins made from metals other than
gold and silver. In the Ottoman regions, the words mangir and pul were used for effectively the
same thing as fals. The subject of fals has been discussed in the context of many issues,
especially by Muslim jurists. The subject of fals in the Islamic legal corpus is discussed in
Chapter Four of this thesis.

Lexical meanings across different languages demonstrate the interrelatedness of economic

terms, and it is highly probable that exchange of economic terms has occurred throughout
history. This is not surprising, as human interactions between different communities were
predominantly based on social institutions such as marriage, politics, and trade. 102 Analogous
to the exchange and borrowing of words, an exchange of ideas, institutions, concepts, and even
ideologies has taken place between communities.103 Given the nature of trade, it has been one
of the most significant cross-cultural mechanisms in history. Therefore, with the inter-societal
nature of money in mind, a broader exploration of monetary understandings in ancient

100
Al-Muṭī’ī, Takmila Al-Majmūʿ Sharḥ Al-Muhadhdhab, 140.
101
R. Cyril Lockett, “The Coinage of Offa,” The Numismatic Chronicle and Journal of the Royal Numismatic
Society 20 (1920): 57-89.
102
Graeber, Debt : The First 5,000 Years, 29-41.
103
Francesca Trivellato et al., “Religion and Trade : Cross-Cultural Exchanges in World History, 1000-1900,”
n.d., 288.
36
civilizations is imperative. A comprehension of ancient Greek philosophy can assist in
understanding its Islamic counterpart. This applies to several other disciplines and scholarly
discourses. Moreover, to comprehend money and related discussions in Islamic economics, a
comprehensive understanding of the technical classification of money per the relevant
discipline is crucial. In the subsequent part of this chapter, a brief overview of the various types
of money and the related terminology is presented.

3.2 Types of money

The terminology of money’s economic theory is generally expressed in a juristic manner rather
than an economic manner.104 This holds true for Islamic economics as well, since the literature
at hand is for the greater part written by Muslim jurists, and to a lesser extent by historians. The
normative nature of Islamic fiqh as opposed to the positive nature of economics should not be
overlooked while studying such sources. While it is true that Islamic jurisprudence awards a
great authoritative domain to time and tradition (ʿurf), even allowing certain legal actions based
on a prevalent ʿurf, yet jurisprudential mechanisms quite paradoxically oppose certain actions
to become a custom, but when those actions do become customary (taʿāmul) among people, it
is adopted into its own system of legal rulings. Be it as it is, in this part, I will look at the distinct
types of money from an economic perspective prior to analyzing it from an Islamic economic
stance.

3.2.1 According to economists

In conventional economics, the origin of money is explained in two distinctive theories as

previously mentioned. The market theory of money states that certain commodities like gold,
silver, wheat, barley – more often with intrinsic value than not – commonly became the general
acceptable media of exchange as a result of their natural properties, henceforth these types of
money are called natural money.105 According to this theory, money as a concept initially
started through natural and market related effects. The commodity’s convertibility,
homogeneity, durability, availability, and scarcity, in short, its properties, are among the
plausible reasons why certain commodities gained preference over others. Prime examples are
cowrie shells in China, tally sticks in Britain, precious metals, and even cigarettes and alcohol

104
Mises, The Theory of Money and Credit, 50-51, 54.
105
Hülsmann, The Ethics of Money Production, 24.
37
in post-war regions or prisons.106 The second theory is the state theory of money, which in turn
argues that the concept of money starts with the state or any authority decreeing that a certain
commodity has value ab extra – irrespective of its intrinsic value.107 This is mostly related to
inning taxes or any other form of debt to a public authority, hence why this is considered state
money or legal tender.108 Some fundamentals of these theories are traced back to Ancient Greek
philosophers, but there has been extensive literature on this since then. Noteworthy authors of
treatises related to money in the Middle Ages are Nicolas d’Oresme, Al-Maqrīzī, and
Copernicus.

Natural money has an intrinsic value, meaning that the market and general custom of people
have given that commodity a value equaling or close to its real value. The precious metals are
good examples of natural monies, for their values are based on their natural essence. A four-
gram pure gold coin is worth a four gram pure gold plate, stamped or not.109 This type of money
does not draw its value from a monarch or minister’s edict, instead it gains its value from the
markets. In a metallist economy, both pieces of gold could be used equally well. Legal money,
on the other hand, might – but not necessarily – have a different nominal value than its real
value. Take, for example, a handmade five-dollar bill and a government printed five-dollar bill;
no doubt the latter can be used in commercial transactions, while the first will be of no worth
at all. Fiat or paper monies, therefore, are good examples of legal money. Bank money, any
claim of future money to a legal person and also known as credit and debit money, may be
added as a third category.110

The second widely used distinction in categorizing money is based on its (non-)physical
structure, but such a categorization is more useful for numismatics and only of limited use for
economics, so I have refrained from using such a classification. There have been made many

106
Davies, A History of Money from Ancient Times to the Present Day, 19.
107
Knapp, The State Theory of Money, 30.
108
Hudson, “Origins of Money and Interest: Palatial Credit, Not Barter,” 47.
109
When talking about the fineness and purity of gold in the Middle Ages, pure gold generally entails 22 carat
because the technology and instruments of the time did not allow to mold 24-carat gold bars or coins due to its
excessive softness. Moreover, analyzing the golds purity was not as accurate during those times as it is today.
Cf. Ehrenkreutz, Andrew S. “Studies in the Monetary History of the Near East in the Middle Ages II. The
Standard of Fineness of Western and Eastern Dīnārs before the Crusades.” Journal of the Economic and Social
History of the Orient, 6/3, 1963: 243-77; https://doi.org/10.2307/3596267. Accessed 31 May 2023.
110
This difference only applies to representative money and not to bank money per se.
38
more categorizations of money, some more useful than others. For the purposes of this thesis,
however, these categorizations have been omitted.111

The market theory and state theory of money are the major theories on money and both have
dominated the literature. Naturally, two major theories regarding the nature of money, each
representing the diversity of thought on these matters, have been identified accordingly:

1. The materialist-functionalist approach. Nearly universally accepted by all

economists, this theory combines two independent approaches into one. The materialist
approach states that before something may be considered money it must have certain
material properties (portability, indestructibility, homogeneity, divisibility, and
cognizability). The functionalist approach, on the other hand, does not look at the
material properties of the goods, but rather looks for the commodity most suited for
specific functions (medium of exchange, unit of account, store of value, standard of
deferred payment) that money must possess. Most modern economics literature have
accepted an alliance between the two approaches, eventually causing economists to
define money by summing up its properties and functions.
2. The social institution approach. Sociologists, most notably Marx and Simmel, have
contributed to and elaborated on monetary exchange and barter as a social phenomenon.
While both thinkers have a different understanding of money and monetization, they do
have in common that they approach money as a social institution rather than an
independent development in the usage of certain materials as money, as is the case for
most economists. Marx, for example, clearly states that money is an abstract notion and
the physical forms of money are mere reflections of this abstract concept. Marx discerns
barter from monetary exchange based on a use and exchange value-based explanation;
a commodity becomes money because it is socially accepted as money, or in his words
“a universal equivalent of value”. Money then allows for exchange to happen, based on
its use value. He critiques the capitalists for prioritizing exchange value over use value,
resulting in the commodification of goods and the alienation of labor. 112 Simmel sees
barter and money exchange as two distinct, yet substitutable variants of the same
sociological phenomenon. To him, money is an expression of abstract value.113

111
For other Monetary distinctions cf. Pryor, The Origin of the Economy: A Comparitive of Distribution in
Primitive and Peasant Economies, 151-56.
112
Marx, Capital: A Critique of Political Economy, 60-66; Simmel, The Philosophy of Money, 127-39.
113
Simmel, The Philosophy of Money, 127.
39
The materialist-functionalist approach fails to define money a priori, because money is only
money when it does what money does. Money being money comes from its function and is
viewed as a technological development with various properties and functions, each describing
what money is, rather than the social agreements that make monetary exchange possible. From
the social institution approach, however, it is argued that money is not a mere technology
introduced into human’s endeavor in life, but rather a complex social arrangement between a
myriad of social structures, effectively making monetization a similarly complex social
construct. The materialist-functionalist approach conceives a simple barter-money dichotomy,
but the social institution approach posits something more complex and nuanced. According to
Marx, barter distinguishes itself from money exchange based on the initial purpose that causes
labor expenditures, and the fact that in barter both parties are buyers and sellers, which is not
the case for a normal sale contract; one side does not get a useable good.114 Consequently, barter
for Marx is a far more limited concept compared to others. Simmel also disagrees with the
materialist-functionalist approach, asserting that barter and money exchange are two forms of
the same social phenomenon.

114
Marx, Capital: A Critique of Political Economy, 60-61.
40
 Table 3.1 : Types of money in modern economics.

Type Explanation

Commodity Money A physical good used as a medium of exchange which has intrinsic and use values.

Representative A physical good (mostly paper) representing the value of another commodity that has a
Money higher intrinsic value. Also called commodity-backed money.

Fiat Money Anything which is declared to be acceptable as money by a central authority, in turn
making it a legal tender. This declaration, rather than its intrinsic value, grants the money
its value.

Fiduciary Money Similar to fiat money in that it has no intrinsic value, however, fiduciary money is not a
Fiduciary Currency legal tender and relies on both contracting parties to use this representative object as a
medium of exchange.

Token Money Physical money with a lesser intrinsic value than its face value, which is not (necessarily)
a legal tender but has a (limited) use as a medium of exchange.

Promissory Note A note in which one party promises to pay a certain amount of money to the other. This
note maybe or may not be negotiable.

Paper Money A negotiable promissory note made by a bank or another licensed authority. Originally,
banknotes derived their status from being convertible into gold and silver. However,
Banknote
since 1931, banknotes are legal tenders by themselves.
Bill / Note

Bank Money A broad term to refer to the money in bank deposits in contrast to “circulating” money.

Imaginary Money Money of account, moneta numeraira, is a mere instrument used to perform some
monetary functions.

Hard Hard money originally referred to the physical properties of metal money like gold and
Money/Currency silver. Today, hard money refers to those monies that act, to some degree, like metal
money in national and international markets, i.e., a currency which retains high value
over longer periods when compared to other currencies.

41
 Table 3.1 (continued) : Types of money in modern economics.

Type Explanation

Soft Soft money, just like hard money, refers to the physical properties of paper
Money/Currency
money, dubbing fiat currencies as soft currencies. In broader and more modern
terms, hard and soft moneies refer to the degree of reliability and confidence of
the relevant monies. Soft currency refers to a currency which does not retain its
value over longer periods when compared to other currencies.

Endogenous Endogenous money suggests that money supply is primarily determined by the
Money
interactions of economic agents within the private banking system, and it is
influenced by the demand for credit.

Exogenous Exogenous money refers to the belief that money supply is determined and
Money
controlled by external factors, typically through the actions of a central authority,
such as a central bank or government.

Currency Currency is the standardization of money in any form as a medium of exchange.

In modern economics, it also refers to the official money currently circulating in
a country and in use as a medium of exchange. Currency, in a broad sense, may
take the form of metal coins, paper notes and even bank deposits.

Digital Currency Digital currency refers to a form of currency or medium of exchange that exists
only in electronic or digital form. Unlike traditional physical currencies such as
coins or banknotes, digital currencies are purely digital representations of value.

Legal Tender A currency that is recognized by law as acceptable for settling transactions and
debts within a particular jurisdiction. In other words, legal tender is the official
medium of payment that must be accepted for the discharge of monetary
obligations, such as the repayment of debts, the payment of taxes, or the purchase
of goods and services.

42
3.2.2 According to Islamic jurists

Most definitions of money given throughout history are teleological of nature. The first known
discussion on the ontology of money has been done by none other than Plato and Aristotle. In
the extension of Aristotle’s analyses, money in modern economics has been defined as a means
of exchange, measure of value, store of value, and standard of deferred payment.115 Historians
have discovered several such commodities across the globe which have been utilized as
primitive forms of money in their relevant eras. Naturally, the ontology of money has been
linked with the two most relevant theories about its origins, naturalism and cartelism, but it is
clear that I can only postulate hypotheses regarding its emergence.116 Perhaps, to quote Stuart
Chase, “The most important thing about money is the human willingness to accept it.”117

Muslim jurists have discerned two types of money, money khilqatan and money istilāḥan. Many
sources in Arabic use phrases like “khalaqa Allah al-dhahab wa al-fiḍḍa athmānan”,118 which
have mostly been translated to English as “God created gold and silver as money”. When a
reader first notices these phrases, he/she may get the idea that God specifically created gold and
silver to be money. And to no surprise, many translations hint to the idea that gold and silver
are the only acceptable forms of money according to Islamic sources.119 Muslim jurists in fact
did not intend to exclusively ascribe the role of money to gold and silver, one will see that
words as bi al-ṭabʿ which means “naturally” have been used as well, giving more context to
what is actually intended. Al-Dahlawī, similar to many others, who discussed how exchange
and money came to be, argues that gold and silver, due to their natural attributes were naturally
most suitable to serve as money, hence why they became money by creation, i.e. by nature.
Other forms were only money by mutual understanding and agreement (istilāḥan).120 The first
type may be categorized under the natural money category as mentioned before, the second
type of money is a mix of both natural and legal money.

The main difference between money khilqatan and money istilāḥan becomes evident in cases
where money loses its rawāj or nafāq.121 Both terms technically mean the same and refer to the

115
Black, Oxford Dictionary of Economics, 304.
116
Tony Lawson, “Social positioning and the nature of money,” Cambridge Journal of Economics 40/4 (2016):
961-96.
117
Chase, The Tyranny of Words, 198.
118
For more quotes regarding gold and silver being created (khuliqa) as money, see Section 3.3.5.
119
For more on proponents and opponents of such views, cf. Asadov, “Money in Islam: A Social Contract
Perspective,” 1-5.
120
Al-Dahlawī, Ḥujjat Allah Al-Bāligha, I, 158.
121
Rawāj and nafāq: the circulation of a currency or commodity in the market.
43
circulation of a commodity or money in the market. If gold or silver coins go out of circulation
for whatever reason, Islamic law still regards both metals as money because gold and silver are
money by creation, i.e. by nature.122 If, however, other coins not made of gold or silver go out
of circulation, they would lose their status of being money, returning to their original status as
a commodity. This difference has significant implications in loan contracts, partnerships, salam
contracts, etc. when money goes out of circulation.

An important issue here is the fact that current Islamic economists and jurists, in the search for
rulings regarding modern forms of money such as banknotes, bank money and
cryptocurrencies, make legal analogies (qiyās) on primary sources such as the Qur’an and
Sunnah, or they make istikhrāj on secondary sources such as precedent fatāwā. One example
that occurs very often is the comparison of classical fulūs to modern day paper or bank money
for the simple reason that paper and bank money are neither gold nor silver and because fulūs
has a higher nominal value than its intrinsic value. While this may be the case, most researchers
overlook the fact that fulūs are considered commercial commodities when they go out of
circulation (rawāj or nafāq) as money. No doubt, paper, bank and electronic money have no
intrinsic value at all and thus are not commodity monies. It seems to me that the only
economical characteristic of these modern forms of money is their functioning as money, i.e.
thamaniyya. Therefore, it is not accurate at all to make simple generalizations by comparing
today's money to the classical fulūs.

Kasād: when a currency or commodity goes out of circulation.

Inqiṭāʿ: a commodity or currency is not available on the market despite it being in circulation.
Rakhs: A decrease of value in commodities or fulūs. If the value of commodities decreases, we speak of deflation,
and if the value of the fulūs decreases we speak of devaluation.
Ghalā: An increase in the value of commodities or fulūs. If the value of commodities increases, we speak of
inflation, and if the value of fulūs increases we speak of revaluation.
122
Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-Mukhtār, IV, 534.
44
 4 THE CONCEPT OF MONETIZATION

Depending on the discipline and context, monetization has several meanings: For this study,
monetization is firstly understood as a sophisticated form of standardization and refers to the
use of money instead of barter exchange.123 Secondly, after the transformation into basically a
non-barter economy, monetization refers to the process of converting (or perhaps establishing)
something as a legal tender. As such, monetization is generally accepted to make commercial
and economic transactions easier and allow for individual rights to be evaluated against their
monetary values.124 The first aspect is closely related to money’s function as a medium of
exchange and the second aspect is closely related to money as a store of value and unit of
account.125 In modern times, monetization and money are often seen as economic concepts,
especially after the methodenstreit of the late 19th century.126 Both concepts have arguably been
assumed as given in modern economics, especially due to inherently social and historical nature
of the subject at hand. But the split in debates regarding money and monetization between
economics and sociology, and the pervasiveness and regularity of money in everyday life has
contributed to a lack in critical thinking and scrutiny in both sciences. Save a few, the nature of
money and its difference from other commodities have escaped scientists of both fields. This is
equally true for Islamic economists and Muslim jurists. Money – and monetization by extension
– is simply too common and vulgar to attract attention.

The significant exception occurs during a crisis, such as deflation, devaluation or

hyperinflation, when not only economists but also sociologists turn their attention to money.
Suddenly, the concept of money is estranged and seems uncomfortably vague. In order to
discuss money, one has to understand the process of monetization, then again, to understand
monetization, one has to know what money is. It is this catch-22 loophole and semantic
roundabout on which definitions of monetization rest. Barter, for example, is defined as
exchanging goods for goods without using money. In turn, money is often pegged to barter,
giving us a definition that in its simplest form it goes back to “barter is exchange without money
and money exchange is not-barter trade”.127 These definitions of barter – and money for that

123
Hess, “Standardization and Monetization: Legal Perspectives,” 80-95.
124
Hull, Monetization: A Theory and Applications, 62, 63.
125
Bernholz, “Money and Its Role in a Decentralized Market Economy,” 42-59.
126
Geoffrey Ingham, “On the Underdevelopment of the ‘Sociology of Money’,”
http://dx.doi.org/10.1177/000169939804100101 41/1 (June 29, 2016): 3-18.
127
Hull, Monetization: A Theory and Applications, 13.
45
matter – are insufficient because each assumes that a distinct antonymic concept suffices to
define important features of another concept. This apophatic approach defines what barter is
not, but does not define barter itself, nor does it provide a definition for money. In order to
understand monetization in Islamic economics, a closer look at the economic system where the
Islamic rulings emerged is required.

4.1 Money in a metallic economy: the natural state in early Islamic economics

Any attempt to find or pinpoint the start of monetization is fruitless and impossible. As
mentioned previously, money itself does not have a simple and single starting point; the concept
of money is interwoven with barter and credit as much as it coalesces with monetary and
technological developments in the history of human civilizations and therefore one cannot
specify a certain time when money itself emerged. This is even more applicable to monetization,
both concepts are multi-faceted social processes. It should be clear that most historians and
economists speak in relative rather than absolute terms when they make mention of the rising
monetization of Western society in the twelfth and thirteenth centuries.128 It is not that barter
ceases to be used completely and monetary exchange takes its place. Monetization, in this
context mostly refers to the increase of monetary exchanges in comparison to natural
exchanges; hence a relative rise in monetization.129 The process of monetization is inextricably
tied to the rapid growth of trade, markets, and towns; the acceleration of agricultural and craft
production; the evolution of specialized commercial enterprises and techniques; and the
penetration of monetary and commercial values into all areas of social life.

Be it as it is, Islamic economics’ perspective on money and monetization is still important,

because Islamic jurisprudence discerns money from other commodities for a variety of reasons.
That is why the next chapter addresses a metallist state which takes up the bulk of Islamic state
history, followed by a discussion on money and monetization in Islamic Economics and
developments that occurred in Islamic economic history about these specific topics follow.

4.1.1 Money supply and money stock

Metallic money supply refers to the total amount of metallic coins available in a particular
economy at a given time. This includes coins that are in circulation, as well as those held in

128
Kaye, Economy and Nature in the Fourtheenth Century: Money, Market Exchange, and the Emergence of
Scientific Thought, 15.
129
Postan, “The Rise of a Money Economy,” 125-27.
46
reserves by banks and other financial institutions. The supply of metallic money is controlled
by the central mint, which can adjust the number of coins in circulation by either minting new
coins or withdrawing old ones from circulation. However, the supply of metallic money is
limited by the availability of the metals used to produce the coins. For example, if gold or silver
becomes significantly dearer, its cost to mint new coins may be higher, and the supply of
metallic money may – under normal circumstances – decrease, provided that the standard karat
and weight of them are kept intact.

The metallic money stock refers to the total value of all metallic coins that exist in an economy
at a given time. This includes all coins in circulation, as well as those held in reserves. The
metallic money stock can be used as an indicator of the overall strength and stability of an
economy, as it reflects the total money that is available for transactions and economic activity.
One of the main advantages of metallic money stock is that it is a tangible representation of
economic wealth. Unlike digital currencies or paper money, which can be easily created or
destroyed, metallic money is a finite resource that cannot be manipulated in the same way. This
means that the metallic money stock can provide a more accurate measure of an economy's true
wealth and stability. However, the metallic money stock can also be affected by factors such as
inflation and fluctuations in the price of the metals used to produce the coins. Inflation can
erode the value of metallic coins over time, reducing their purchasing power and causing the
metallic money stock to decrease in value. Additionally, if the price of the metals used to
produce the coins increases significantly, the metallic money stock may decrease, as it becomes
more expensive to produce new coins.

4.1.2 Coinage

Coinage is the process of producing coins as a means of currency for the exchange of goods
and services. Historically, different metals were minted into coins to facilitate their use as a
means of payment. By specifying a specific weight and fineness of precious metal in each coin,
its value could relatively be stabilized.130 Coinage also afforded rulers the opportunity to
enhance their reputation or squander it, depending on how coinage during their reign was
handled.131 The study of numismatics provides valuable information about historical periods
through analysis of the characteristics of minting activity, coin quality, gold and silver content,

130
Redish - Weber, “Coin Sizes and Payments in Commodity Money Systems,” 63.
131
Leland, “The Debasement of Coinages,” 586.
47
and engravings. This information can shed light on the financial stability or the power of the
central authority of the region where the coins were used.

In classical jurisprudence, according to the majority of Muslim jurists, the government (i.e. the
caliph) has the sole privilege over the mint. It is by his decree that golden and silver coins may
or may not be minted. The imam of the Ḥanbalī school of law, namely Aḥmad ibn Ḥanbal,
states “Dirhams may only be minted in mints with the permission of the sultan, if people were
permitted to mint [dirhams] freely, they would commit grave mistakes.”132 The 14th century
famous Tunisian historian, Ibn Khaldūn enumerates several coin related issues such as
debasement, counterfeiting, coinage, and then states that “controlling all of this is the task of
the caliphate” i.e. the government.133

The process of minting standard units of weight in the form of coins incurs a cost known as
brassage. Governments may have an incentive to monopolize the minting of coins to take profit
from the difference between the price at which they are sold and their intrinsic value plus
barrage, known as seigniorage.134 Early on, minting coins was seen as a service to the
community and no profit was made on the process, as precious metals were exchanged only
pursuant the Prophet Muḥammad’s command “equal weights for equal weights on the spot”,
i.e. to avoid violating the prohibition of ribā.135 This practice is generally regarded as providing
the best outcome, as the closer the coinage value approximates its intrinsic value, the higher the
stability in its value, which in turn has a positive effect on the economy.

The reliability of dirham and dinar, and the minting practices used for these coins, played an
important role in the economic boom of the early period of Muslim expansion. However, over
time, dirham and dinar were debased, and they did not only refer to specific coins but also the
term dinar came to represent a measure of weight called mithqāl and dirham a unit of weight.136
Many rulers sought to reintroduce this standard, not only for the economic benefits of a stable
currency but also because of the prestige associated with the first dirham and dinars, which

132
Al-Buhūtī, Kashshāf Al-Qināʿ ʿan Matn Al-Iqnāʿ, II, 232.
133
Ibn Khaldūn, Kitāb Al-ʿIbar wa Dīwān Al-Mubtadaʼ wa Al-Khabar fī Tārīkh Al-ʿArab wa Al-Barbar wa Man
ʿĀṣarahum min Dhawī Al-Shaʼn Al-Akbar, I, 281-82.
134
Sussman - Zeira, “Commodity Money Inflation: Theory and Evidence from France in 1350–1436,” 1771.
135
Lowe, “Monetary Development in Fatimid Egypt and Syria (358-567/969-1171),” 6.
136
Ibid., 22.
48
were struck under the Caliph ʿUmar ibn Al-Khaṭṭāb, considered one of the greatest religious
authorities by Muslim scholars.

To ensure fair transactions, people were religiously obliged to weigh coins, as their weight
could vary minutely, and reluctantly lead to ribā al-faḍl.137 Indeed, historical data suggest that
this was the common practice of coin-trade.138 Over time, counting coins became more
customary, especially for copper or silver coins, despite the primary sources prescribing to
weigh them.139 This practice is sometimes used as evidence to support the idea that intrinsic
value may be bypassed when dealing with money, leading to the use of token money.140
However, historical evidence suggests that people did not prefer token coins over coins with
intrinsic value because these coins were less reliable, and whenever the value of these token
monies decreased, the economy suffered, and people requested currency reform to address the
problem.141 While the transition from intrinsically valued monies to token monies is seen as the
second stage in the evolution into pure fiat money, economic historians generally regard this
stage as degradation.142 Therefore, I argue that the transition to token money cannot necessarily
be seen as progress in the evolution of money.

4.1.3 Seigniorage

As mentioned above, income generated by the sovereign through the minting of money is
referred to as seigniorage. Classical Islamic sources do not have a specific term for minting
costs. In classical texts, ujra ḍarb al-nuqūd or ujra sikk al-nuqūd, “the price of coinage” or “the
price of minting” are commonly used phrases to express this concept, in the Ottoman language,
haqq-i tughra is used (tughra privilege). Seigniorage is defined as the amount left to the
sovereign as a result of subtracting the costs incurred for its production from the nominal value
of money. In the periods when mettalism was in effect, a fee higher than the minting cost was
charged for the conversion of precious metals brought to the mint into coins. This differential
fee charged by the mint is called brassage. Any excess fee charged by the sovereign as the
owner of the mint is called seigniorage.

137
Muwaṭṭaʾ Mālik, Kitāb Al-Buyūʿ, 37 and 39, hadīth number 1329 and 1331; Ibn Māja, Kitāb Al-Tijāra, 50 and
52, hadīth number 2259 and 2262.
138
Lowe, “Monetary Development in Fatimid Egypt and Syria (358-567/969-1171),” 52.
139
Siegfried, “Concepts of Paper Money in Islamic Legal Thought,” 321.
140
Ibid., 320.
141
Lowe, “Monetary Development in Fatimid Egypt and Syria (358-567/969-1171),” 48.
142
Fox - Ernst, Money in the Western Legal Tradition: Middle Ages to Bretton Woods, 203.
49
While brassage is a widely accepted phenomena, seigniorage on gold and silver coins as known
in the Western world does not seem like a plausible form of income for an Islamic government.
The prohibition of ribā does not allow for gold bullion to be traded for a lesser amount of coined
gold. Barring a minority opinion of Islamic jurists who allowed a difference in the amount of
precious metals when trading bullion with adornments only, there is no room for seigniorage in
Islamic jurisprudence. Even the cost of coinage itself i.e., brassage is a point of discussion
among scholars when referring to gold and silver.

When a customer brings 1 kilogram of gold bullion to the mint, it is expected that the owner of
the mint returns 1 kilogram of gold coins to the customer. Otherwise, ribā al-faḍl will occur
which is unanimously prohibited according to Islamic jurisprudence. Brassage costs for the
coinage of precious metals and fulūs may be paid from the bayt al-māl, because this task falls
under the responsibilities of the government.143 While this is the opinion of the majority of
scholars, there are exceptions: Imam Mālik allows for brassage to be paid by the customer under
certain conditions and Ibn Qayyim allows for gold bullion to be traded for gold adornments,
but not for gold coins. According to other scholars, both cause ribā al-faḍl to occur in the
transaction. The topic was a hot discussion with many scholars from different eras contributing
to the literature.

Under the metallic coin regime, it is not possible for the ruler’s seigniorage income to generate
a significant profit under normal conditions. So, when resorting to coinage for urgent financing,
the ruler turns to debasement (taghshīsh). When resorting to debasement, the ruler keeps the
nominal value of the money fixed while reducing its weight, or the weight remains the same
while reducing the content of precious metal, filling the depleted part with a valueless metal. In
the paper money regime, there is no situation where individuals have their own paper money
printed and pay a printing fee. Therefore, the difference between the nominal value of the paper
money and the printing cost constitutes the government's seigniorage revenue.

4.1.4 The government

Islamic doctrine stipulates that the government has the responsibility to protect the welfare of
all individuals, Muslim and non-Muslim, under its authority. The government is entrusted with
the management of the bayt al-māl, which initially refers to a place in Medina where the Prophet
Muḥammad and his first Caliph Abū Bakr stored the public wealth accumulated in name of the

143
Wizāra Al-Awqāf wa Al-Shuʾūn Al-Islāmiyya Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XXXXI, 179.
50
newly established state. In Islamic state governance, the bayt al-māl has defined certain
parameters on wealth accumulation for the government, and the funds are designated for
specific purposes, such as defensive and infrastructural expenditures and payments for
government officials, among others.144 The early caliphs aimed to keep as little wealth as
possible in the bayt al-māl as per the example of the Prophet, and emphasized the protection of
private property. This approach, coupled with a focus on its distribution to the poor, contributed
to the success of the Muslim conquest, according to Lowe.145

The caliphs’ primary responsibilities include enforcing the law, showing political and religious
leadership, upholding justice and protecting the people. While the ruler is allowed to cover his
expenditures through the bayt al-māl, the early caliphs were cautious in doing so.146 The Caliph
ʿUmar ibn Al-Khaṭṭāb would behave as “the custodian of the orphans”, hence he would only
take for himself from the bayt al-māl if he did not have sufficient sustenance, and even then he
would take moderately and pay it back.147 However, there are instances where later rulers, such
as the Ottoman Sultan Murad III (1546-1595), hoarded large amounts of personal wealth,148
which negatively impacted the economy.149

Regarding monetary policy, the government is responsible for ensuring that the money stock,
including the purity and quality of coinage, is maintained in good order. This involves keeping
existing circulation in good condition, allowing the right to melt or export, and permitting
unlimited mintage free of charge.150 The government's actions regarding coinage could affect
the ruler’s prestige and the confidence of economic agents, as quite notably occurred when
Mehmed I (d. 1421) minted a new coin to show his break from the Mongolian vassalage.151
However, excessive government interference, such as setting specific gold/silver ratios or
exchange rates between different coins, could impede economic activity.152 The government
should also ensure that the range of denominations fits the needs of the population, including
small denominations, which disproportionately affect the poor.

144
Rahman, “Bayt Al-Mal and Its Role in Economic Development: A Contemporary Study,” 23.
145
Lowe, “Monetary Development in Fatimid Egypt and Syria (358-567/969-1171),” 17.
146
Khan, “Profit and Loss Sharing: Islamic Financial System,” 34.
147
Rahman, “Bayt Al-Mal and Its Role in Economic Development: A Contemporary Study,” 25.
148
Tezcan, “The Ottoman Monetary Crisis of 1585 Revisited,” 463.
149
Koehler, “The Economist Mohammed Ibn Abdullah (570-632),” 110.
150
Lowe, “Monetary Development in Fatimid Egypt and Syria (358-567/969-1171),” 6.
151
Johnson, “The Ottoman Currency System (1687-1754),” 38.
152
Gerber, “The Monetary System of the Ottoman Empire,” 318.
51
4.1.5 The people

Islamic tradition encourages the circulation of money through various means, as expounded in
its primary sources. The mandatory payment of zakat, which entails the contribution of a
percentage of one's excess wealth to the poor, not only ensures the equitable distribution of
wealth but also promotes investment, as money that is kept in safes is eaten away by the zakat,
money which is invested in real estate is exempt from the zakat.153 Even the Prophet himself is
narrated saying: “don’t let it [i.e. wealth] be eaten by the zakat.”154 In addition, these sources
incentivize lending to those in need (qarḍ al-ḥasan), as well as engaging in trade and investing
in business ventures.155 Upon the Muslim conquest of former Persian and Byzantine territories,
marketplaces were subjected to rigorous scrutiny to ensure fair dealings, thereby engendering
consumer confidence, which in turn stimulated increased spending and investment. This was
further facilitated by the abundance of specie resulting from the increased availability of coins.
The implementation of low taxes, upkeep of honest marketplaces, abolition of interest, and
preservation of a healthy coin stock proved to be significant factors contributing to economic
boom.156 Furthermore, the primary sources emphasize the individual's responsibility to adhere
to religious prescriptions. As more people converted to Islam, the internalization of these
prescriptions played a crucial role in the economic expansion, although it was initially
hampered by the perceived discrepancies between the Ummayad governmental edicts and
religious tenets. However, during the reign of ʿUmar ibn ʿAbd Al-ʿAzīz (717-720), considered
by many Islamic scholars as the fifth rightly guided caliph, there was a renewed emphasis on
adhering to the original teachings, which resulted in reduced discontent, particularly among
non-Arab citizens. This, in turn, led to a quadrupling of tax revenues despite a significant
reduction in tax rates. His policies were short-lived as he was poisoned after only two and a
half years of reign, paving the way for the Abbasids to take over the caliphate. Nevertheless,
his popularity among the Sunnite scholars attests to the high regard accorded to rulers who
adhered to the primary sources of Islam. While political considerations may have influenced
such esteem, it underscores the centrality of the primary sources in Islamic economics.157

153
See for example the Qurʾan, 4:12; for some sayings of the Prophet Muhammad, see: Sunan Ibn Māja, ḥadīth
number 1787; Muwaṭṭaʾ Mālik, Kitāb Al-Zakāt, 3 and 7, ḥadīth number 583 and 587.
154
Sunan Al-Tirmidhī, hadīth number 641.
155
Ṣaḥīḥ Al-Bukhārī, hadīth number 2391; Sunan Ibn Māja, ḥadīth number 2409.
156
Shatzmiller, “Economic Performance and Economic Growth in the Early Islamic World,” 133.
157
Khalek, “Early Islamic History Reimagined: The Biography of ʿUmar Ibn ʿAbd Al-ʿAzīz in Ibn ʿAsākir’s
Tārīkh Madīnat Dimashq,” 435.
52
4.1.6 Debasement

There exists a body of literature on the subject of debasement, which has been a recurring
historical phenomenon. Despite the extensive documentation of episodes of debasement,
historians continue to debate on its reasons and effects.158 One widely accepted notion is that
the need to resort to debasement indicates government weakness. Historical records suggest
that debasement is usually a downward slide that can only be reversed through currency reform.
Debasement involves reducing the silver or gold content of newly minted coins relative to
previously minted ones, which leads to the circulation of coins with varying weight and
fineness. Consequently, coin essaying becomes important for honest trade, which requires the
services of moneychangers who possess the skills and equipment to determine the exact weight
and fineness of coins. As such, moneychangers played a vital role in monetary affairs.159 In the
Muslim World, these moneymakers were called ṣayārifa (sing. ṣayrafī), but their expertise
coupled with the need of the state and people for cash led them to broaden their field of
expertise, which in turn gave them political and social status. These specialized money
exchangers, called the jahābidha (sing. jahbadh), may be called the earliest primitive form of
bankers.160

According to mainstream historians, the primary reason for debasement was to achieve direct
financial gain by surreptitiously lowering the silver or gold content of coins without announcing
this to the public, secretly inflating away government debt. The newly minted coins would be
distributed through the payment of soldiers and public servants. However, such a practice is
rare because it leads to inflation and undermines public confidence in both the authorities and
the currency used. It may also lead to discontent among soldiers, which is a risky precedent for
a ruler.161 Evidence from historical records indicates that this was the case for the Ottomans
who, after executing the vizier responsible for the 1585-1586 debasement, were prevented from
resorting to further debasement by the threat of reprisal from the powerful Janissaries.162
Similarly, the Safavid ruler in 1555 forced merchants to sell their silk stocks to him and paid

158
Rolnick - Velde - Weber, “The Debasement Puzzle: An Essay on Medieval Monetary History,” 9.
159
Dutu, “Moneychangers, Private Information and Gresham’s Law in Late Medieval Europe,” 560-61.
160
Araz, “İslam İktisat Tarihinde İlkel Bir Bankacılık Örneği: Cehbezler,” 22.
161
Leland, “The Debasement of Coinages,” 588.
162
Pamuk, “In the Absence of Domestic Currency: Debased European Coinage in the Seventeenth-Century
Ottoman Empire,” 356.
53
them with silver dirhams that had half the silver content of previously minted ones, a practice
that was widely condemned throughout the Muslim world.163

Another reason for debasement was to realign the value of coins in circulation. This required
the continuous recall and reissue of coins by the mint to maintain their good condition. The
value of coins in circulation is essential to ensure smooth trade and prevent counterfeiting.
However, if the coins’ intrinsic value decreased, the previously issued more valuable coins
would be hoarded and/or exported, leading to their disappearance from circulation.164 This
process is referred to as the Gresham law, “bad money drives out good”, which was explained
by Thomas Gresham to Queen Elizabeth I in the sixteenth century.165 To avoid this
phenomenon, counterfeit money prevention and vigilant government monitoring of the
currency stock's quality were necessary. However, once a particular threshold was crossed,
debasement became the only option for dealing with the problem. In such cases, the purity
would be lowered to drive out good money with higher gold/silver content than newly minted
coins. Scholars like Al-Ghazālī, Ibn Taymiyya, Ibn Qayyim, and Al-Maqrīzī have openly
condemned such practices in their works.166

4.2 Monetization and demonetization in Islamic economics

4.2.1 Monetization

As mentioned in the previous chapters, Islam emerged in a society where coinage, monetization
and thus money co-existed with barter exchange. Several commodities were used for bi-and
unilateral transactions, for example, wergilds, bride money, atonements, trade and more,
causing Muslim jurists to concede to both barter and monetary exchange. Monetization starts
from a barter economy switching to a monetary exchange-based economy, but the region where
Islamic jurisprudence was born was already a mixed economy of both barter and money
exchange. In this respect, Muslim jurists discerned various transactions based on the
commodities exchanged.167 In the following part, I present a discussion on the historic progress

163
Tezcan, “The Ottoman Monetary Crisis of 1585 Revisited,” 473.
164
Lowe, “Monetary Development in Fatimid Egypt and Syria (358-567/969-1171),” 94.
165
Ibid., 100.
166
Islahi, “An Analytical Study of Al-Ghazali’s Thought on Money and Interest,” 8-10.
167
Islamic commercial law knows more than just the abovementioned forms of transactions, however, for the sake
of brevity, I have limited the scope to the most essential and common forms of transactions.
54
of monetization in Islamic economics, starting with Islamic understanding of exchange which
became the nexus of related monetary discussions.

4.2.2 Demonetization

Demonetization refers to the process of stripping a currency unit of its status as legal tender,
rendering it invalid for conducting transactions. This typically involves the government or a
relevant monetary authority declaring certain denominations of banknotes or coins no longer
acceptable as a medium of exchange. Demonetization is often undertaken for various reasons,
including economic, fiscal, or regulatory objectives. The process can have significant
implications for the economy, financial institutions, and the general public.168

4.2.3 Understanding exchange in Islamic jurisprudence

First of all, Islam acknowledges private property. Any property owned by an individual, be it a
commodity or real estate, is called al-māl al-muḥtaram, or protected property. Any muḥtaram
property is protected by the shariah and entitled to its rightful owner. Unlawful violations of
protected property is not only legally penalized through indemnity regulations, but also
ethically condemned and prohibited by the Qurʾan itself: “lā taʾkulū amwālakum baynakum bi
al-bāṭil illā an takūna tijāratan ʿan tarāḍin minkum” which means “Do not devour one another’s
wealth unlawfully, even in the form of trade based on mutual consent”.169 Prior to this verse,
the Qurʾanic context speaks about giving the rightful owner his/her due right in cases of
inheritance, orphanage, and marriage: in all of them property exchange occurs, and not always
in the most just manner. After regulating these specific cases, the Qurʾan stipulates a generic
rule for mankind’s most commonly used form of property transfer: mubādala, i.e., exchange. I
discuss the forms of exchange in the following chapter.

4.2.4 The concept of mubādala

Muslim jurists use the generic term buyūʿ (sing. bayʿ, sale transactions) to describe various
commercial exchanges. Buyūʿ in the broad sense of the word simply refers to mutual exchange
of two commodities (mubādalatu mālin bi-māl), also called mubādala or muqābala in Arabic.
The word mubādala incurs the exchange of two badals. Most classical textbooks and even more

168

BhaQurʾan, 4:29.
55
modern advanced books in Islamic jurisprudence all define buyūʿ as mubādala.170 The
interesting aspect to note here is that the Arabic word badal means a substitute, a thing given or
received, in place of, in lieu of, or in exchange for, another thing; effectively a compensation.171
So according to Islamic jurisprudence, two commodities are exchanged with each other because
people consider object A to be a badal, a substitute or compensation, for object B. Object A
equals object B, either in essence (as is the case for ribawī goods) or in value with both
contracting parties’ mutual consent (as is the case in al-bayʿ al-muṭlaq or muqāyaḍa). The crux
of the matter is that such exchanges ought not to be unjust per the Qurʾanic injunction “Do not
devour one another’s wealth illegally, but rather trade by mutual consent”.172 One example for
illegally devouring another’s property is taking interest, i.e. ribā; an example for a legal
exchange with mutual consent is the sale transaction, both forms of exchange are explicitly
mentioned in the Qurʾan.173

So the main principle in all Islamic contracts174 is that equal badals are exchanged: in the case
of smaller differences in value – be it subjective or market value – that occurs in the exchange
of goods or during sales, the mutual consent condition will assure that both parties have a fair
agreement. In the case of exchange of the same goods, though, the Shariah has stipulated a fine
system to assure the principle of equal trade is preserved. The Prophet Muḥammad said in a
famous narration the following which have kept Muslim jurists discussing and debating for
centuries:

Sell gold for gold, silver for silver, wheat for wheat, barley for barley, dates
for dates, and salt for salt, like for like, equals for equals, exchanging on the
spot. But if the genus differs, then sell as you wish as long as it is [sold and
exchanged] on the spot.175
Muḥammad was well aware of economic and commercial transactions of his time, after all, he
himself was a merchant for quite a period of his life. Why then would he tell people to sell gold
for gold, silver for silver, and so on for “likes” and “equals”? No economic benefits would flow
from such sales, and people in general do not feel the need to sell a product for another of its

170
Al-Sarakhsī, Al-Mabsūṭ, XII, 181; Al-Buhūtī, Kashshāf Al-Qināʿ ʿan Matn Al-Iqnāʿ, III, 396; Al-Nawawī, Al-
Majmūʿ Sharḥ Al-Muhadhdhab, IX, 149.
171
Lane, An Arabic-English Lexicon, 167.
172
Qurʾan, 4:29.
173
Qurʾan, 2:275.
174
When I speak of Islamic contracts, I am referring to Islamically legal forms of commercial agreements. Islamic
contracts may be undertaken by Muslims and non-Muslims, what makes a contract Islamic is its being Shariah-
compliant.
175
Saḥīḥ Muslim, hadīth number 1569 and 1570.
56
kind in equal amounts. What is referred to here is the fact that were a person to trade a good for
its kind, then taking any surplus would be ribā – whether the surplus is in the form of a time
difference or actual surplus. It is a plausible explanation that Muḥammad, with these words,
urges people to monetize society and actually promotes the use of exchanges based on money
rather than barter trade, especially when it comes to similar or near-similar goods.176 The
essential query pertains to whether the Prophet articulated this rule in his capacity as the
messenger of God and the authorized spokesperson for the Divine legislator, or alternatively,
did the enunciation of this rule stem exclusively from the historical and geopolitical
circumstances prevailing at the time, constituting a political declaration made by the Prophet in
his role as the head of the state? This question delves into the dual roles assumed by the Prophet:
that of a spiritual leader conveying divine messages and directives, and concurrently, a political
leader overseeing the governance and administration of the nascent Islamic state. In general,
the majority of the scholars have accepted this as a part of the Shariah, and not a mere monetary
policy. A just standard to facilitate exchange in the form of money is thus an integral part of
Islamic jurisprudence.

Muslim jurists in turn have discerned the various forms of exchange pursuant to certain
normative clauses in the Shariah. A clear distinction is made between a hic-et-nunc property,
ʿayn, and a future property or a claim, dayn. The distinction in the ʿayn-dayn dyad is the subject
of one of the later paragraphs. So, for now, the tripartite classification of bilateral forms of spot
exchange are given below:

1. The exchange of dayn for ʿayn, money for a commodity, called al-bayʿ al-muṭlaq or the
common sale transaction.
2. The exchange of ʿayn for ʿayn, or a commodity for a commodity, called muqāyaḍa, or
the barter exchange.
3. The exchange of dayn for dayn, or money for money, called ṣarf, or the currency
exchange.

Modern economics and Islamic economics agree on the point that money is a commodity in its
broad sense, but Islamic economics grants monetary assets a special place in its legal structure.

176
See for example the following hadith: Allah's Messenger appointed someone as a governor at Khaibar. When
the man came to Medina, he brought with him dates called Janīb. The Prophet asked him, “Are all the dates
of Khaibar of this kind?” The man replied, “[No], we exchange two baskets of bad dates for one basket of this
kind of dates [i.e. Janib], or exchange three baskets for two.” On that, the Prophet said, “Don't do so, as it is
a kind of ribā but sell the dates of inferior quality for money, and then buy Janīb with money.” Saḥīḥ Al-
Bukhārī, hadīth number 2302 and 2303.
57
Despite this fact, modern Islamic jurists do regard gold and silver coins as commodity money,
but at the same time claim that money is not a commodity. So as to understand the difference,
I shall delve into the relation between money, commodities and exchange to get a clear
understanding of the distinction. But in order to present the technicalities of the Islamic legal
structure and the distinctions between al-bayʿ al-muṭlaq, muqāyaḍa, and ṣarf in Islamic contract
law accurately, I will have to draw distinctive lines between what an ʿayn and dayn is.

4.2.4.1 Dhimma and the ʿayn/dayn dyad

Islamic law offers a different perspective to the concept of legal personality compared to
common or civil law. The Western legal literature conceptualizes claims and debts/credits as
an obligation or a legal duty for the individual, but dayn in the Islamic legal sense cannot be
understood as such. The counterpart of the Western legal personality, dubbed dhimma in
Arabic, is metaphorically described as a repository or vessel in which all the rights and
obligations of an individual – both material and spiritual – are contained.177 Prayers and zakat,
as well as monetary debts and goods could be contained in the dhimma of a person as an
obligation to another. Which goods are eligible to enter a person’s dhimma is related to
difference between an ʿayn and a dayn.

Muslim jurists made a distinction between specified property here-and-now (muʿayyan and
mushakhkhaṣ or hāḍir and mawjūd) and unspecified property to-be (dayn fī al-dhimma),
respectively called ʿayn and dayn.178 While both fall under the generic term māl, property,
scholars have identified a significant difference between the two. ʿAyn, as the lexical meaning
of the term implies,179 refers to a specified and identified good, one that is present here-and-
now, singled out from amongst other similar goods. This specific car, that specific basket of
apples, or this bar of gold – as long as they are present and specified – are all examples of ʿayn.
The process of specifying any property into an ʿayn is called al-taʿyīn.

Dayn, on the other hand, refers to property to-be, it is either not (yet) specified, or not (yet)
present, making the usage of dayn as māl only figurative.180 Take for example the deferred
exchange of a second-hand car for one kilogram of gold; in this case, the car is the ʿayn for it

177
Zahraa, “Legal Personality in Islamic Law,” 203.
178
Cattelan, “Property (Māl) and Credit Relations in Islamic Law: An Explanation of Dayn and the Function of
Legal Personality (Dhimma),” 191-92.
179
Al-Jawharī, Al-Ṣiḥāḥ Tāj Al-Lugha wa Ṣiḥāḥ Al-ʿArabiyya, XI, 170-72.
180
Ḥaydar, Durar Al-Ḥukkām Sharh Majalla Al-Aḥkām, I, 226-27; Wizāra Al-Awqāf wa Al-Shuʾūn Al-Islāmiyya
Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XXVIII, 215.
58
has been specified, it is that specific car you buy and not another equivalent. A kilogram of
gold however is not specified in the sense that it could be any kilogram of gold, it could be two
500-gram gold bullions, or 10 golden coins each weighing 100 grams, and so forth. As one can
see, the ʿayn is connected to the object, the dayn on the other hand, is more connected to the
subjects, the creditor and the debtor. It is for that reason that you will find statements like lahu
dayn and ʿalayhi dayn, the credit belongs to him and the debt is on him respectively, indicating
that the dayn is connected to the dhimma of subjects.

The classification of property into dayn and ʿayn has ramifications in Islamic legal contract law
which cannot be overlooked. As mentioned in the previous chapter, Islamic economics knows
three different forms of spot-exchange, namely al-bayʿ al-muṭlaq, muqāyaḍa, and ṣarf.
Categorizing exchangeable goods correctly into either dayn or ʿayn is of utmost importance. In
theory, a māl could become either dayn or ʿayn depending on the situation, except for purely
non-fungible goods (qiyamī), which have no equals or equivalents in the market. Therefore, I
will take a look at how classical Islamic scholars have categorized different commodities in
exchange contracts according to the ʿayn/dayn dyad.

4.2.4.2 Thaman, mabīʿ or somewhere in between.

Thaman is the price given for a commodity, mabīʿ, in an exchange. Since exchange
encompasses all forms of commodities and monies, either of the exchanged sides could be
money, or non-money goods, but the related rulings regarding the exchange will differ
accordingly. If both are commodities, a muqāyaḍa transaction will take place and the ruling
thereon will be accordingly. If both compose of monies, a ṣarf transaction will take place and
the ruling will be according to the ṣarf transactions. The Hanafī jurist Ibn ʿĀbidīn has
summarized the difference between commodities that take the role of thaman or mabīʿ as
follows.

Know that both naqdān [gold and silver] are always thaman, and a non-
fungible commodity (al-ʿayn al-gayr al-mithlī) is always mabīʿ. Any
commodity other than money, weighable or measurable by volume, and near-
similar countable commodity taken in return for one of the naqdān or an ʿayn
is mabīʿ. If that weighable, measurable or the near-similar countable
commodity is specified, it also is mabīʿ. If, however, it is not specified, the
commodity that comes with the prefix bā – for example: “I buy this slave for
a kor of wheat” - it becomes the thaman. If, however, it is [generally] used
as a commodity, then it becomes a salam contract. For example “I buy from

59
 you a kor of wheat for this slave”, in this case, the regulations regarding
salam should be obliged to.181
In another place, he elaborates on what exactly constitutes thaman;

Thaman is that which becomes a dayn in the legal personality [of a person]
when exchange occurs. It [thaman] is naqdān or any specified fungible good
when exchanged for an ʿayn or unspecified fungible good that comes with the
prefix bā. As for mabīʿ, it is any non-fungible good (al-qiyamiyyāt) or
unspecified fungible good when it is exchanged for money or an ʿayn.182
In another paragraph in the chapter on ṣarf, Ibn ʿĀbidīn writes his last words on the topic.
Fungible commodities are all commodities which can be sold simply based on its weight,
volume or quantity, but naqdān are excluded.183 Yet again we see that gold and silver are
granted the high ground despite being fungible goods too. A very plausible explanation is that
both metals were the standard for monetary value during greater times of human history. It is
not a strange notion if one would argue for supremacy of gold and silver over all forms of
monetary assets in a time where nearly all transactions, and all international trade were done
through gold and silver. As a concluding remark, the author of the Al-Durr Al-mukhtār,
Muḥammad Al-Ḥaṣkafī, summarizes goods in three categories:

1. Goods that are always thaman. The author exclusively regards gold and silver for this
category.
2. Goods that are always mabīʿ. The author only mentions examples for this category,
namely clothes and animals, indicating that this category is characterized by non-
fungible (qiyamī) goods.
3. Goods that are thaman from one perspective and mabīʿ from another. The author
mentions fungible (mithlī) goods as an example. Naturally, gold and silver do not fall
under this category since they are already exclusively mentioned in the first.184

In general, while exchanging a fungible commodity with a non-fungible one, the first takes the
position of thaman and the latter takes the role of a good (mabīʿ). However, when exchanged
with gold or silver, all commodities have to submit to the role of becoming the good in the
contract (mabīʿ) because of the superiority of the two precious metals. This exclusive status
seems to be granted by Muslim jurists of all law schools (madhāhib). The main reason for such

181
Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-Mukhtār, VII, 49.
182
Ibid., VII, 392.
183
Ibid., VII, 574-76.
184
Ḥaṣkafī, Durr Al-Mukhtār Sharḥ Tanwīr Al-Abṣār wa Jāmiʿ Al-Bihār, 448-49.
60
a metallistic approach lies in the fact that gold and silver have been dominating the scene of
monetary assets during the greater part of history. Any alternative form of money was either
temporal or limited to specific regions, ironically enough only strengthening the idea that gold
and silver are God made money. However, modern times have changed drastically, and both
gold and silver have lost the international reckoning it once had in commercial transactions –
safe intergovernmental and other exceptions - among nearly all people of the world. Do gold
and silver still enjoy the status of money no matter what despite the rise of paper and bank
money? Is it not possible that bank money and paper money have taken over the international
scene of money no matter what?

4.2.4.3 Muqāyaḍa, mubādala and ṣarf

After finally setting the stage for what constitutes to what in Islamic contract law, I would like
to scrutinize three of the historically most used contracts: muqāyaḍa, mubādala and ṣarf. Barter,
or muqāyaḍa, in Islamic literature is the exchange of a specified commodity with a specified
commodity, or an ʿayn for an ʿayn. One exchanges this specific item for that specific item, other
equivalents or equals are not acceptable in such a barter exchange. Equals or equivalents are
not accepted as replacement without the contracting parties’ consent because the objective of
the trade (maqṣūd al-muqāyaḍa) is the pointed commodities being exchanged. Barter happens
when two ʿayns are traded, specified non-fungible goods are the prime examples of this, as
mentioned by Al-Ḥaṣkafī, as stated previously. This horse for that pair of shoes, this cattle for
that poultry, this car for that house; these are all examples of ʿayns, in all the three examples
qiyamī goods are being bartered. What happens if not qiyamī goods, but specified mithlī goods
are exchanged? Take the example of this basket of wheat for that basket of barley, both are
specified (taʿyīn) and each has now become an ʿayn, that is why both are not interchangeable
with the same species and amount of wheat or barley because that opposes the identification
and specification as agreed upon. That is the essence of muqāyaḍa, exchanging two specified,
identified and present properties with mutual consent of the contracting parties.

When money comes into the picture, the specification and the identification of one side of the
bargain becomes a little less clear, but it does not violate the mutual consent of the contracting
parties. The main difference is that one side wants the specified and identified commodity,
while the other side agrees to accept a compensation that is not a specified or identified
commodity: it is something of value, it is the price for the commodity. This is the so called al-
bayʿ al-muṭlaq. It does not matter if the price is a specific money at hand, or another but

61
equivalent money somewhere else: as long as the value equals to what is agreed upon, either
money may be paid. To pose an example, take the exchange of a horse for 100 dinars. The
horse, specified and identified, is the ʿayn, one cannot change this horse with another horse –
even if similar – because it has been specified (taʿyīn) in the exchange. Were one to change the
horse for another, even if similar, the first agreement would be annulled and a new contract
would be initiated. The 100 golden coins, however, may be exchanged for other than those 100
golden coins, because money, in this case the dayn, cannot be specified. This is because money
is a unique and fungible commodity and does not get specified regardless of the contracting
parties’ intents, as the axiom reads al-nuqūd lā tataʿayyanu bi al-taʿyīn,185 i.e. money does not
become specified even if specified.

To further illustrate the above-mentioned, one might look at the sale of a car with a price tag of
300,000 Turkish lira. Upon agreement between the contracting parties, the car in question is the
ʿayn and mabīʿ, the 300,000 Turkish Lira is the thaman and becomes a dayn in the form of a
debt on the customer to the car salesman, and simultaneously, the 300,000 Turkish lira becomes
a dayn in the form of a credit from the car salesman to the customer. In more technical terms,
the divergence between the dayn-ʿayn dyad ensures the objectivism of Islamic law and
ascertains that at least the thing sold has a material and concrete existence. Deferred exchange
of dayn for dayn violates the objectivism of Islamic law and rules of ribā, hence why the Prophet
forbade the sale of two deferred claims bayʿ al-kālī bi al-kālī, or bayʿ al-dayn bi al-dayn. The
customer may pay the 300,000 Turkish Lira dayn in whatever way he would like; this would
not pose a problem for the contract’s validity. In contrast to the ʿayn of the contract, because
that is the actual maqṣūd, the mabīʿ, hence why it may not be changed for another similar object
if both parties want to keep the same contract.

Now let us look at the ṣarf contract. It involves an exchange of currencies, a mutual and spot
exchange of a dayn for a dayn.186 A typical example of it in classical works would be the
exchange of gold dinars for silver dirhams. What sets money – and perhaps more generally,
dayn – apart from other goods is that al-nuqūd lā tataʿayyanu bi al-taʿyīn, money is not
specifiable, it is fungible regardless of either contracting parties’ specification. Say, for
example, that 10 gold dinars are being exchanged for 100 silver dirhams, if both are in
circulation, if not each has to be named. It does not matter which 10 gold dinars or which 100

185
Ibn Al-Humām, Fatḥ Al-Qadīr ʿalā Al-Hidāya, VII, 13.
186
Kureshi - Hayat, “Bai Al Sarf,” 75.
62
silver dirhams each party pays, as long as both dayns are met. This unspecifiable quality is not
solely restricted to precious metals, wheat and barley or any other fungible good may take up a
similar role of money in such trades.

Coming back to the subject of monetization, commodities per se are eligible to become both
ʿayn and dayn in an exchange, after all, something becoming an ʿayn is a matter of specification
and identification. However, if becoming ʿayn is only a matter of specification and
identification, why then is money always considered dayn in a money-for-commodity
exchange? What then constitutes the dioristic quality of money? Since Islam’s emergence
coincided with the metallism era, many legal scholars have claimed that gold and silver are
money khilqatan, i.e., “created as money by Allah” and that other coins and monies are only
money istilāḥan, i.e., “by social acceptance and agreement”. The abovementioned dichotomy,
and in particular the case of gold and silver being created as money has resonated and amplified
into modern research and writings. So, a discussion on gold and silver as “God-created money”
is of prime importance. In the next part of this study, several pivotal discussions made in Islamic
economics are summarized and scrutinized accordingly.

4.2.5 Thaman and thamaniyya

As noted previously, thaman refers to the value of a commodity, either expressed in money or
another commodity. As Al-Ḥaṣkafī mentions that non-fungible goods can never take the role
of thaman. In my view, the main reasons that non-fungibles cannot take the role of thaman have
to do with the practical necessity for money’s fungibility, the uniqueness of non-fungible goods
in general, and the fact that thaman is an expression of a commodity’s value; non-fungible
goods do not fulfil the role of expressing another commodity’s value accurately. So thaman is
the price of a commodity expressed in any currency. This job is naturally best suited for mithlī
commodities. Thamaniyya, therefore, refers to a good that could be used to valorize a
commodity and serve as a thaman.

There is no real limit to which commodities fulfill the role of thaman and which do not. Sunnite
schools of jurisprudence, in general, took two different stances towards this issue: the first group
of scholars argued that the matter of thamaniyya should be understood on ontological premises.
Gold and silver, for example, are generally value-holding (thamaniyya) because of something
intrinsic to both materials. In technical terms, gold and silver are jins al-athmān ghāliban, a
category of materials commonly used as currencies, or simply put ghalaba al-thamaniyya.

63
Scholars arguing for such a restrictive understanding of money limit the monetary assets to gold
and silver, and whatever is derived from either one.

A second group of scholars argues for an unrestricted approach to money, basically accepting
any commodity that is acknowledged according to the custom (ʿurf) of the people to take the
role of thaman. Effectively, this means that anything could function as money as long as it is
accepted as such. This second approach is known under the name of muṭlaq al-thamaniyya,
unrestricted acceptance of thaman. Scholars that argue in favor of ghalaba al-thamaniyya seem
to take a very materialistic and metallistic approach towards what constitutes thaman and
attribute to gold and silver a special place which they do not grant to other commodities.187

4.3 Monetization and demonetization of currencies in Islamic history

4.3.1 Gold and silver as money

In the previous two chapters, the special place Islamic jurists granted to gold and silver in
Islamic legal law is presented. This chapter will try to analyze whether or not such a special
position can still be maintained in modern day’s economics and Islamic jurisprudence.
According to most Islamic jurists, naqdān are always the thaman. Not a surprise considering
nearly all Islamic jurists came from a time characterized by trade on the basis of gold and silver,
and to a lesser extent copper and nickel. While the Western world has witnessed a certain
demonization of money in medieval society, to the point that Ernst and Fox speak of “salvaging
money from purgatory”, the Islamic world has not witnessed a similar demonization on a
societal level. While individual cases may be presented to prove otherwise, the majority of
scholars, jurists and religious clerics have always regarded money’s existence as neutral. In line
with Aristotle and their Western colleagues, Muslim thinkers did grant gold and silver a special
status in the legal corpus. Yet, contrary to some researchers’ claim that non-Western cultures
have barely contributed to the notion that money is a necessary instrument which fulfills
important functions for the common good,188 Islamic scholars have contributed to this
discussion in a far more early stage. In our current case, it seems that Thomas Aquinas (1225-
1274) has taken his thought and ideas from Al-Ghazālī (1058-1111), who wrote on many

187
While the debate of ghalaba and muṭlaq al-thamaniyya is an interesting one, the reader should be aware that
significant portions of this discussion occur under the notion of ribā and the famous hadith on six usurious
goods. While scholars may accept gold and silver to be the only goods that have the legal cause of thamaniyya
and disregard legal analogy (qiyās) to other forms of money, they do not negate that non-precious metals are
acceptable forms of money.
188
Fox - Ernst, Money in the Western Legal Tradition: Middle Ages to Bretton Woods, 67-70.
64
relevant monetary discussions with similar words and conclusions more than a century prior to
Thomas Aquinas.189

4.3.1.1 Monetization of gold and silver

Naturally, one may not speak of a monetization process of gold and silver in Islamic history
because both coins were already money in pre-Islamic era, but one should analyze how the
precious metals’ monetization has been accepted within the framework of Islamic
jurisprudence. Below, I have mentioned a few of many statements regarding the status of gold
and silver as money from a spectrum of scholars of variant schools of Islamic thought. These
and similar statements regarding gold and silver by Muslim scholars throughout the ages makes
the status of both metals as God-created money more apparent. The founder of one of the four
schools of jurisprudence, Muḥammad ibn Idrīs Al-Shāfiʿī (d. 204/820) says: “Gold and silver
are different from everything because they are the price (thaman) of everything. Therefore, food
products or any other commodity cannot be compared to gold and silver.”190 Abū ʿUbayd, a
ninth century Muslim scholar, regards naqdān as thaman for all things (al-ashyāʾ).191 Al-
Ghazālī says that “Allah created gold and silver as standards and intermediaries among all
goods, so that all other goods may be measured/valorized by the two metals.”192 Ibn Khaldūn
uses similar words and regards that “God created the two precious stones, gold and silver, as a
value for all goods, and they are a means to hold value and possession for most of
humankind.”193 Similar words have been written by the 12th century philosopher and Mālikī
judge, Ibn Rushd,194 his contemporary Hanafī colleague Al-Kāsānī,195 the 13th century Hanbalī

189
For Islamic scholar’s contribution to the discourse, cf. Islahi, History of Islamic Economic Thought:
Contributions of Muslim Scholars to Economic Thought and Analysis; for evidence of Thomas Aquinas being
influenced by Al-Ghazālī, cf. Smith, Al-Ghazali: The Mystic, 220-23.
190
Al-Shāfiʿī, Al-Umm, III, 15.
191
Al-Qāsim ibn Sallām, Kitāb Al-Amwāl.
192
Khalaqa Allah taʿālā al-danānīr wa al-darāhim ḥākimayn wa mutawassiṭayn bayna sāʾir al-amwāl hattā
tuqaddara sāʾir al-amwāl bi-himā. While this paragraph of Al-Ghazālī is cited numerous times in modern
academic papers, one must not forget that the author wrote this book to revive the spiritual side of the Islamic
sciences and does not strictly adhere to academic, let alone economic, understandings. His main point of
discussion in this chapter is more for spiritual edification rather than doctrinal instruction. He does have similar
statements in other works, but more concise and obscure than as mentioned in his Al-Iḥyāʾ. Cf. Al-Ghazālī,
Iḥyā ʿUlūm Al-Dīn, IV, 178. Al-Ghazālī, Al-Wasīṭ fī Al-Madhhab, III, 150; IV, 106.
193
Ibn Khaldūn, Kitāb Al-ʿIbar wa Dīwān Al-Mubtadaʾ wa Al-Khabar fī Tārīkh Al-ʿArab wa Al-Barbar wa Man
Āṣarahum min Dhawī Al-Shaʾn Al-Akbar, I, 478.
194
Ibn Rushd, Bidāya Al-Mujtahid wa Niḥāya Al-Muqtaṣid, 583.
195
Al-Kāsānī, Badāʾiʿ Al-Ṣanāʾiʿ fī Tartīb Al-Sharāʾiʿ, V, 185.
65
jurisprudent Ibn Qudāma,196 Ibn Taymiyya and his student, Ibn Qayyim Al-Jawziyya,197 and
the 20th century Hanafī jurist Ibn ʿĀbidīn.198

The nexus of the debate revolves around the question if gold and silver as God-created money
is the undisputed stance of Islamic jurisprudence, or does it have sociological, historical and
cultural causes rather than scriptural evidence.

From an Islamic jurisprudential point of view, there is no proof in the primary sources that gold
and silver are God-created money. There is no explicit command or prohibition, not in the
primary sources and neither in the secondary ones, with regard to what ought to be money. Only
the legal deductions of scholars – which are not few in number – indicate an idea of God-created
money. As Al-Dahlawī indicates, expressions and claims that gold and silver are God-created
money should be understood as saying that wool is God-created clothing, stones are God-
created bricks, coals are God-created fuel. All these commodities share material characteristics
which make them more suitable for certain functions rather than others: stones’ accessibility,
availability and durability made them to be used for buildings over millennia, coals’ less
advanced and relatively unsophisticated technological utility made it a primary fuel for
centuries. In that sense, one might argue that stones and coal are God-created bricks and fuel
respectively, but to exclude any other (natural) material from becoming a brick or fuel would
be unrealistic and unnatural at least. I would argue that the same is the case for gold and silver;
they may have functioned as the main form of money for millennia, and many scholars might
have regarded them as God-created money – be it metaphorically or literally, but that does not
take away that another material or anything else whatsoever could function as money too. Many
Islamic scholars argue that gold and silver are created by God to be money, I argue that this
notion came into being because of gold and silver’s dominance over all other forms of money.
Gold and silver, in my opinion, have crucial monetary attributes which make them function
very well as money. The Prophet lived in an era of gold and silver dominance, so his legal
statements take this into account. Nevertheless, the maqāṣid al-sharīʿa was never meant to
make gold and silver the exclusive forms of money, but rather point at important monetary
attributes which must be fulfilled by monetary policies or currencies.

196
Ibn Qudāma Al-Maqdisī, Al-Mughnī, IV, 218.
197
Ibn Taymiyya, Majmūʿ Al-Fatāwā, XIX, 251-52; Ibn Qayyim Al-Jawziyya, Iʿlām Al-Muwaqqiʿīn ʿan Rabb Al-
ʿĀlamīn, II, 105.
198
Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-Mukhtār, III, 271.
66
Furthermore, on the subject of monetization, I argue that gold and silver have been monetized
into the Islamic legal corpus because society used both metals as money and it has become the
primary form of money for centuries later. Subsequently, scholars have argued that both gold
and silver are the most natural forms of money, seemingly accepting both as divine sent
materials to be used as money. But the usage of other forms of money such as fals and
promissory notes (suftaja), and the kāʾima in the late Ottoman era, shows that money is not
gold and silver exclusively. The distinction made by later scholars between khilqī and istilāḥī
money is yet again a result of the predominance in utility, marketability and acceptability of the
two metals over other forms of money, such as fals and suftaja. I would like to illustrate this
notion with an example from a common ruling in Islamic transaction law.

The Mālikī scholar Ibn Al-Ḥājj (d. 737 AH/1336 CE) was asked about the Islamic ruling for a
debtor’s debt when the currency of the debt is withdrawn from circulation. So he narrated a
similar situation that had happened centuries before. During the times of the Umayyads in Al-
Andalus, modern day Iberian Peninsula, the reigning ruler Al-Muʿtamad ibn Al-ʿAbbād (r. 461-
484 AH/1069-1091 CE) withdrew the silver currencies of one of his predecessors, Abū Al-
Ḥazm ibn Juhūr (r. 422-435 AH/1031-1044 CE). The Sevillian Islamic jurisprudent Abū Jābir
- then judge in the office of Córdoba – narrates that the Muslim jurisprudents gave a legal
verdict for a debtor that he may take no other currency than the demonetized currency to settle
the debt. The Mālikī scholar ʿAbd Al-Rahmān ibn ʿAttāb, however, gave a legal verdict that
the debtor takes the value (qiyma) of the old currency in gold and would insist that his fatwā is
the correct verdict.199 Similar debates and fatwas have continued to keep the Andalusian jurists
occupied, and great names of varying times such as Ibn ʿAbd Al-Barr and Al-Bājī have
contributed their fair share to the discussion.200

Effectively, this is called the kasād (demonetization) of a currency in Islamic jurisprudence and
there is no shortage of historical examples for such instances. In any debt or sale contract, the
kasād and inqiṭāʿ (shortage) of money has different results depending on the kind of money.
Below, I have summarized the various stances of the four major schools of Islamic
jurisprudence on rulings related to the kasād, inqiṭāʿ, rakhṣ and ghalā of currencies.

199
Al-Wansharīsī, Al-Miʿyār Al-Maʿrib wa Al-Jāmiʿ Al-Maghrib ʿan Fatāwā Ahl Ifrīqiyya wa Al-Andalus wa Al-
Maghrib, 163-64.
200
Ibid., VI, 163-64; 461-62.
67
 1. The Mālikī school: Any dayn, whether it be from a sale contract or a loan, ought to be
returned in the contractual currency, in all four cases. However, in cases of kasād and
inqiṭāʿ of a gold, silver, or fals currency, the contracting parties may resort to an
alternative of equivalent value (qiyma).201
2. The Shāfiʿī school: Any dayn, whether it be from a sale contract or a loan, ought to be
returned in the contractual currency, even in cases of revaluation and devaluation or
where the ruler demonetizes the currency but people still use it. In cases of kasād and
inqiṭāʿ of a gold, silver, or copper currency, the contracting parties may resort to an
alternative of equivalent value (qiyma).202
3. The Ḥanbalī school: Any dayn, whether it be from a sale contract or a loan, ought to
be returned in the contractual currency in all four cases. However, if the ruler
demonetizes the currency, then the debtor takes an equivalent value (qiyma) in a
different currency.203
4. The Ḥanafī school: The school has a very wide scope of opinions reported from its
classical scholars. Hence their stance needs a broader explanation than the previous
schools. To give a summary of the legal rulings:
A. For a dayn in silver and gold currencies:
a. Any dayn in gold or silver currency, whether it originates from a sale contract
or a loan, ought to be paid in the contractual currency (mithl), in all four cases.
This is by unanimous decision of the classical scholars.
B. For a dayn in other than gold and silver currencies:
b. According to Abū Ḥanīfa, a sale contract with the demonetized currency is
terminated (faskh). A dayn originating from a qarḍ contract ought to be paid in
the contractual currency and amount (mithl), in all four cases.
c. According to Abū Yūsuf and Muḥammad b. Al-Ḥasan Al-Shaybānī, any sale
contract with the demonetized currency is left to the contracting parties: the
contract is either terminated (faskh), or the qiyma (value) is paid in other
currencies. A dayn originating from a qarḍ contract ought to be paid in the qiyma
(value) in other currencies. The two students only differ on the actual value that

201
Mālik ibn Anas, Al-Mudawwana Al-Kubrā, III, 75; Ibn Rushd, Al-Bayān wa Al-Taḥṣīl wa Al-Sharḥ wa Al-
Tawjīh wa Al-Taʿlīl li Masāʾil Al-Mustakhraja, VI, 429; 487-89; For a good and short summary on the topic,
cf. Al-Ṣāwī, Bulgha Al-Sālik li Aqrab Al-Masālik ilā Madhhab Imām Mālik, II, 23.
202
Al-Nawawī, Rawḍa Al-Ṭālibīn wa ʿUmda Al-Muttaqīn, IV, 37; Al-Haytamī, Tuḥfa Al-Muḥtāj fī Al-Sharḥ Al-
Minhāj, V, 44.
203
Ibn Qudāma Al-Maqdisī, Al-Mughnī, VI, 89.
68
 should be taken. Abū Yūsuf argues for the value on the day of the contract,
Muḥammad argues for the value on the day the currency was demonetized.

I have summarized the legal rulings above in the table below:

Table 4.1 : Legal rulings in case of demonetization of a currency.

Abū Abū Yūsuf Muḥammad Mālikī Shāfiʿī Ḥanbalī
Ḥanīfa
Dayn originating from a sale contract

Mithl Mithl Mithl Mithl Mithl Mithl

Khilqī
Faskh Qiyma Qiyma Mithl Mithl Mithl
Istilāḥī
Dayn originating from a loan contract

Mithl Mithl Mithl Mithl Mithl Mithl

Khilqī
Mithl Qiyma Qiyma Mithl Mithl Mithl
Istilāḥī

4.3.1.2 Demonetization of gold and silver

Many central banks over the world do not regard gold and silver as legal tender, which has
effectively caused the two to lose their usage as a means of exchange and consequently, as a
unit of account.204 In many countries, gold and silver are not accepted as currencies in the
markets. Today, all commodities on local and global markets are evaluated in currencies, not
in gold and silver; monthly wages are paid in fiat money The peculiar end of the silver
standard,205 the gradual decline of the gold standard until a final blow given by the Bretton
Woods agreement206 marked the demonetization of the precious metals. While gold may be a
good store of value, it certainly does not hold up the function of a medium of exchange or a
standard of account any longer. As Carl Menger mentions, it seems that the functions “measure
of value” and “store of value” are merely of accidental nature, and not an essential part of the
concept of money.207

204
31 U.S. Code § 5103, Siekmann, “Legal Tender in the Euro Area,” 3-4.
205
Eichengreen, Globalizing Capital: A History of the International Monetary System, 6.
206
Studýnka - Sling, “The Position of Gold Today,” 40-41.
207
Menger, Principles of Economics, 280.
69
In light of the discussion on thaman and thamaniyya in section 4.2.3 and the findings above,
combined with the fact that there is no scriptural proof that gold and silver are inherently money
per se, one has to conclude that there is no such thing as God-created money. The economic
functions mentioned by modern economists are not the definition of money as such, making me
conclude that money is nothing more than a social construct: money is whatever commodity
people accept to be money. And naturally, throughout history, the most liquid and saleable or
tradeable commodity has proved to function best as money,208 hence why gold and silver have
dominated the scene for centuries. This has led many Islamic scholars to utter statements
affirming the stance of God-created money, but that does not negate the possibility of other
forms of money that could replace the precious metals. Neither does it take away that Islamic
jurisprudence does not oblige gold and silver to be the only acceptable forms of money. Some
authors argue that the natural scarcity and the relative difficulty to produce gold in comparison
to paper money is a proof why gold is the only acceptable form of money, why gold and silver
are always considered money,209 or why the gold standard is/should be anchored in Islamic
finance.210 Again other pro-gold writers claim that, by recreating the society that Allah allowed
the Prophet Muḥammad to shape, a perfect world can be fashioned, and so too the gold dinar,
because it is part of Divine revelation.211

Other researchers have attempted to prove why gold and silver are or are not considered money
in Islamic jurisprudence.212 The answer needs a broad study into the various rulings regarding
thaman in Islamic understanding, combined with an in depth study of the status of gold and
silver coins, bullions, and jewelry in bayʿ, ṣarf, and mushāraka contracts, and zakat and
indemnity regulations. Only then shall one have an objective analysis of the subject at hand.
However, it is difficult to grasp why modern day Islamic economists would argue for the
exclusive acceptance of gold as money in modern society. Gold coins have taken the place of
collectors’ items or wedding gifts and most gold transactions in the world are in the jewelry
industry,213 effectively causing gold to lose its overall usage as money to its counterparts, paper
and bank money.

208
Menger, “On the Origin of Money,” 250.
209
Gezgin, “Fıkhî Açıdan Altının Para Veya Metâ‘ Olma Niteliği,” 168-73.
210
Askari and Krichene, The Gold Standard Anchored in Islamic Finance, 91-108.
211
Bubandt, “Gold for a Golden Age: Sacred Money and Islamic Freedom in a Global Sufi Order,” 115.
212
Türkeri, “Hanefî Mezhebı̇ nde Altin ve Gümüş Dişindakı̇ Para Cı̇ nslerı̇ nı̇ n Hükümlerı̇ ,” 32-56; Gezgin, “Fıkhî
Açıdan Altının Para Veya Metâ‘ Olma Niteliği,” 156-79.
213
“Distribution of Gold Demand Worldwide by Sector in 2022,” Statista (2023); accessed: November 30, 2023
https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/
70
This brings me to the nexus of the debate: a substantial amount of Islamic scholars have noted
that both gold and silver are “created” by God as money, not just gold. Yet, modern day
discourse is more focused on the gold standard rather than both precious metals, while
historically, silver has taken a more frequent position as society’s money – especially in the
West. If Islamic scholars really intended that both gold and silver are God-created – as
proponents argue – then surely silver should not be ignored. The simple fact that silver has lost
some of its exceptional status in modern day Islamic jurisprudence – such as in matters of zakat
calculation – is a proof in and of itself that the precious metals are not God-created money.214
Furthermore, while the parity of gold to silver was 1:10 (or 1:12), its current ratio is 1:80 as per
July 2023, about an eightfold decrease in silver’s comparative value to gold. Since some
indemnity regulations and zakat rules are established pursuant to Muḥammad’s commands, one
has to accept that these commands were per the status quo. Or else God would have chosen a
type of money that failed to meet its purpose. No Islamic scholar would possibly argue for such
an outcome.

On the matter of calculating zakat eligibility, Abū Hanīfa considers the value (qiyma) and not
the weight or the amount (wazn/ajzāʾ) as the decisive matter in respect of gold and silver’s
māliyya. Because commodities are valorized through gold and silver; there is no other purpose
of the two except that they are the measure of goods and by which good quality commodities
and their values are known.215 So it does not matter if it is gold or silver, both are commodities
which ensure a person’s wealth and hence why both combined are considered sufficiently for
zakat eligibility, even if the minimum zakatable amount (niṣāb) is not met when each precious
metal is considered individually. Let me pose an example: Suppose a person owns 8 dinars
(with a value of 100 dirhams), plus 100 dirhams; this person is eligible to pay zakat according
to Abū Hanīfa based on the fact that the total value equals the minimum zakatable threshold for
either one of the precious metals, namely 200 dirhams. His two students, however, argue that
said person only has 50% of the niṣāb for silver and 40% of the niṣāb of gold, a total of only
90% niṣāb. Hence, while their teacher Abū Hanīfa would oblige said person to pay zakat, his
two students would have exempted him of paying zakat. Here clearly, Abū Hanīfa argues for a

214
While I know there are diverging verdicts on the subject, the difference in value between the two niṣābs is
simply too large to ignore (as of January 2023, around €430 for silver compared to €4550 for gold, more than
a tenfold difference). For modern fatwas regarding gold being the niṣāb, cf.: https://kurul.diyanet.gov.tr/Cevap-
Ara/660/kurban-ibadetiyle-yukumlu-olmak-icin-gerekli-nisap-miktari-gumusun-degeri-uzerinden-
belirlenebilir-mi; https://seekersguidance.org/answers/hanafi-fiqh/do-we-calculate-nisab-with-gold-or-silver/.
215
Al-Sarakhsī, Al-Mabsūṭ, III, 20.
71
value based approach rather than a literal understanding of the Prophetic narrations. The fact
that the niṣāb of silver is no longer accepted in the fatwas of modern fatwa commissions only
strengthens the stance of the first of the four Sunnite imams.

Another supporting argument for the opponents of God-created money is the fact that several
Muslim jurists have concluded that non-minted gold is not money but simply a commodity on
the basis that it is not used as thaman but as ornaments and therefore contains no thamaniyya.216
The 11th century Hanafite jurist Al-Sarakhsī in his Al-Mabsūṭ makes clear that non-minted gold
coins are not necessarily money. He mentions that rulings and regulations depend on the
differences in the country’s currency; it might be that certain countries consider precious metals
extracted from the earth (i.e. tibr) as money (naqdan), and others consider it as commodity
(ʿaraḍan).”217 This, too, strengthens the stance that gold and silver are only money if monetized
by a nation or society, and that both metals do not have an intrinsic quality making them money
per se. Why then did the Prophet in his famous narration about the six usurious goods mention
gold and silver, and not dinar and dirhams? This is a valid question. It seems to me that the
main reason is that the economy of that time was both a bullion and a coin economy. By saying
gold and silver, he included dinar and dirham but also any other form of gold and silver that
was used for exchange purposes. So, in conclusion, any commodity which is accepted as money
falls under the prohibited ribawī goods. Exchange between these goods ought to be pursuant to
the equal for equal rule. While this is certainly an aspect of the Shariah, gold and silver being
accepted as money is not.

4.3.2 Fals as money

Golden and silver coins are in the commodity money group. These get their value from the
precious metal they are minted from, not from the power and authority of the state, so the market
value and the real value are equal to each other. In other words, a one dinar golden coin’s market
value supposedly equals the real value of one dinar in weight of gold bullion. Copper fals has
a different story: generally speaking, its market value is much higher than that of the metal it
contains. So, there is a difference in its nominal value and real value. When minted coins – be
they from gold, silver or any other metal – lose their monetary value, they are only worth as
much as the metal they contain.218 Since the real value of gold and silver coins approaches their

216
Mohamad - Sifat, “Gold Vis-à-Vis Money in Islam: The Case against Dinarist Movement,” 980, 983.
217
Al-Sarakhsī, Al-Mabsūṭ, XXII, 34.
218
Bayındır, “Başlangıçtan Günümüze Kadar İslam Toplumunda Madeni Paralar ve Kağıt Paralar,” 15.
72
nominal value, this does not pose much of a problem. However, for a fals coin which gains its
nominal value from the authority that minted the coin and not from the market value of the
metal itself, a withdrawal or a prohibition by the ruler for such coins result in a difference
between its nominal and real values. This is the main reason for fals being used as an ʿadadī
(counted) commodity and not as a waznī (weighed) one in Islamic jurisprudence. Therefore,
although fals is commodity money, it has a different nominal value because of an external factor
– mostly the trust of an authority – adding value to its real value. In this respect, they are
different from gold and silver and like paper money of today.219

Fals money made from copper has been minted by private parties since the time of the Prophet
Muḥammad and has been used as pocket money or change to pay smaller amounts than was
accustomed to pay for with gold and silver.220 Similar to gold and silver, fals had already been
adopted into the Islamic legal system as a form of payment without discussion. However, the
status of fals was somewhat different than the status of gold and silver for several reasons. First
of all, the issue of fals was not centralized, i.e., not under central government control, so
different parties could mint copper coins at will. While such decentralized minting does not
lead to any problems for coins valued by their real weight – as is the case with naqdān – it does
pose a problem for money that gains its value from a fiat, like fals. The values of the copper
coins fluctuated from region to region and time to time, but the quality of the coins itself was
not attested for; even if weights were similar, copper coins varied greatly in value. The
heterogeneity of fals has led to a seminal partition in its perception as money into the legal
corpus of Muslim scholars. A second debated issue with regard to fals is the matter of
seigniorage.

A peculiar era for the fals was the Mamluk Sultanate. During the eighth/fourteenth century,
historical records indicate that Egyptian copper coinage adhered to fixed weight standards.
Numismatic evidence supports this assertion, showing that the fals were consistently minted to
specific weights during this era. Initially, from around 759/1357, these coins were struck close

219
While fals and paper money may seem similar to each other because of a diverging real and nominal value in
comparison to gold and silver coins, paper money and fals differ in the fact that the commodity of fals has
another utility, i.e. intrinsic value, which is not the case for paper money. This is the main difference between
commodity money and paper money. While the commodity of fals (copper, nickel, impure silver, steel etc.)
may be used for other market purposes, the paper of money does not have any significant market value as the
fals metals have. It seems to me that Aristotle tried to emphasize this fact when talking about the natural and
unnatural purpose of money. Therefore, every Islamic jurist should be wary of unrestricted comparisons of fals
to paper money.
220
Kallek, Sosyal Servet İslam’da Yönetim-Piyasa İlişkisi, 34.
73
to an average weight of 3 grams. Subsequently, from that year until 794/1392, the minting
shifted to an average weight of about 4.3 grams. Albeit the rationale behind the weights are still
not clear, the careful reader will have noticed that these weighs are roughly the weighs of a
classical silver dirham and golden dinar.

Throughout most of the fourteenth century, Mamluk copper coinage remained stable in terms
of its weight. However, during the last decade of the century, marked by the second reign of
Barqūq (r. 1390-1399 CE), a significant change occurred. An increasing number of copper coins
were introduced into circulation, to the point where – as the historian Al-Maqrīzī says –“fulūs
became the currency in circulation (al-naqd al-rāʾij) by which all services are valued and all
commodities are priced”, effectively making the fals the dominant currency in Egypt. In time,
even gold coins were measured against copper coins: a dinar for x amounts of dirhamin min al-
fulūs. 221 One should not be deceived and think that copper coins were minted in dirham weights,
rather this term refers to a unit of account. Around 806/1403, the chief qāḍī mandated that
prices, contracts, and debts be recorded in terms of this copper money.222 This era is referred to
as Egypt’s era of copper, however, it was short-lived: copper coins exchange rates plummeted,
causing prices to increase substantially and people to lose hope in copper coins. Al-Maqrīzī
mentions that the cause for this inflation is the corruption of copper coins because the way of
Allah in His creation is that gold and silver are the prices of commodities and the values of
businesses, copper is for pocket money alone.223

4.3.2.1 Fals in the Islamic legal corpus

In the classical schools of Islamic jurisprudence, fals is defined as any metal coin, other than
gold and silver, which is used as money by people.224 There are several different words used in
the Islamic legal tradition for coins made of metals other than the two precious metals, all of
them however fall under the broad category of fals. Sattūqa,225 zayf,226 bahraj[a] or

221
Al-Maqrīzī, Al-Sulūk li Maʿrifa Duwal Al-Mulūk, VI, 112.
222
Ibid., VI, 117.
223
Ibid., VI, 111.
224
Al-Kāsānī, Badāʾiʿ Al-Ṣanāʾiʿ fī Tartīb Al-Sharāʾiʿ, V, 236; Al-Farrā, Al-Aḥkām Al-Ṣulṭāniyya, 178-79.
225
Sattūqa entered the Arabic language from the same Persian word and it literally means debased or false money.
Commonly used for reddish dirhams with more copper than silver, i.e. less than 12 carats. Cf. Hayyim, New
Persian-English Dictionary, II, 33. Ibn Manẓūr, Lisān Al-ʿArab, X, 152.
226
Zayf, zuyūf, zāʾif, muzayyaf all carry the meaning of debased or bad quality silver money. As for its origin, the
Arabic linguists seem to have differing opinions but to me it seems to be of Persian origin as well; both the
Persian and the Arabic language have a second meaning for the word zayf: hastening and walking pompously.
Cf. Steingass, A Comprehensive Persian-English Dictionary, Including the Arabic Words and Phrases to Be
Met with in Persian Literature, 634. Ibn Manẓūr, Lisān Al-ʿArab, IX, 142-43.
74
nabahraja,227 and maghshūsh (lit. debased) are all different words used for metal coins with a
low silver amount; all, save the last one, are most likely Arabized words of the Persian language.

As mentioned priorly, fals is only considered money because a group of people have agreed on
it being legal tender, hence why it is considered istilāḥī (fiat) money. The nominal value of a
copper coin is more than the intrinsic value of the copper of the coin. Economically speaking,
that should be the case or else the copper coins would be traded for their intrinsic value rather
than their nominal value, which in turn will most likely put in effect the Gresham law or could
easily lead to debasement and counterfeiture.

There are various discussions surrounding the rulings and legislations on fals currencies. I have
chosen two topics because of their relevance for this study: the first discussion is whether or
not fals is a ribawī good. The second discussion is about the legal rulings in cases of kasād,
inqiṭāʿ, rakhṣ and ghalā.

4.3.2.2 Al-ʿilla al-qāṣira and Al-ʿilla al-mutaʿaddiya

In uṣūl al-fiqh (legal methodology), theʿilla refers to the legal cause or rationale behind a
particular ruling or legal prescription. According to the prevailing viewpoint, it represents an
inherent attribute of the foundational principle (aṣl) that remains consistent (munḍabit) and
apparent (ẓāhir), establishing a fitting relationship (mutanāsib) with the legal law (ḥukm)
contained within the text. This ʿilla can manifest as a fact, circumstance, or deliberation that the
Lawgiver took into account while issuing a legal decree. In the realm of uṣūl, this ʿilla is
alternatively identified as the manāṭ al-ḥukm (i.e., the cause of the legal law), its sign (amāra
al-ḥukm), and sabab (its reason). While certain scholars have appended numerous conditions
to the concept of ʿilla, many of these remain contentious, and they can be summarized into the
following five conditions of which four are unanimously accepted by all schools of law: an ʿilla
must be a constant (munḍabit), evident (ẓāhir), proper and befitting (mutanāsib) attribute which
does not contradict an established legal law. The fifth condition, the ʿilla being a transient
(mutaʿaddiya) is stipulated by the Ḥanafī school of law but not by the Shāfiʿī and it forms the
nexus of our discussion.

The accepted opinion in the Shāfiʿī school is that gold and silver’s rationale of prohibition for
unequal and deferred exchange is limited to gold and silver only because the precious metals

227
Nabahraj, another originally Persian word meaning worthless and refers to coins of low silver regarded as
worthless by traders. Cf. Ibn Manẓūr, Lisān Al-ʿArab, II, 217.
75
are attributed with thamaniyya exclusively by the Lawgiver, Allah, and His representative, the
Prophet Muḥammad. Any other form of money, for example fulūs, does not have this attribute
of thamaniyya, and thus cannot fall under the prohibited ribawī goods, subsequently making it
perfectly allowed to trade one fals copper coin for two fals copper coins. Limiting the legal
rationale to just what is explicitly mentioned in scripture is called al-ʿilla al-qāṣira, an exclusive
rationale. Based on this reasoning, fals is not considered thaman from a jurisprudential
perspective as gold and silver are, even though they may be called money or thaman from a
conventional perspective.

The Ḥanafī school of law has a similar result, albeit through a different reasoning. Briefly, the
Ḥanafī scholars argue that gold and silver’s rationale for its ribawī status is al-wazn and al-jins,
its weigh-ability and its specie. While the Ḥanafī school does accept that the legal rationale is
in fact transient to other goods not mentioned in scripture, fals would again not fall under the
prohibited ribawī-goods because it is not weighable but countable. Based on this reasoning, one
fals coin may be traded for two, even though fals is considered thaman both from a conventional
and jurisprudential point of view. However, as Al-Kāsānī notes when explaining the stance of
Muḥammad Al-Shaybānī and opposing the stance of the school’s founder:

Indeed, fals is money, so it is not permissible to exchange it for the same type
of currency, differing in quantity, like selling dirhams and dinars. The
attribute indicates that [money] is an expression for what is valued in terms
of the currency of items. And the valuation of items, just as it is estimated in
dirhams and dinars, it is also estimated in fulūs, thus becoming different
forms of payment. Therefore, fals is money when exchanged for different
types and when exchanged for the same type in equal amounts.228

4.3.2.3 Legal rulings in cases of kasād, inqiṭāʿ, rakhṣ and ghalā

The literature with regard to fals and its rulings in these four cases are abundant. I have already
summarized the legal rulings in Islamic jurisprudence regarding the related subject. While gold
and silver coins experience a trivial effect in the abovementioned scenarios, the same cannot be
said about istilāḥī money. Various scholars have written with regard to fals, it is noteworthy to
mention that the Ḥanafī School has dominated the literature, mainly because of the different
rulings narrated from its classical scholars. The most noteworthy ones are the risāla al-fulūsiyya
by Kinalizāde Muslim ibn Amr Allāh (d. 994/1586), Badhl al-majhūd fī asʾila taghayyur al-

228
Al-Kāsānī, Badāʾiʿ Al-Ṣanāʾiʿ fī Tartīb Al-Sharāʾiʿ, V, 185.

76
 nuqūd by Muḥammad ibn Abdullah Al-Timurtāshī (d. 1006/1598), and Tanbīh al-ruqūd ʿalā
masāʾil al-nuqūd min rakhṣ wa ghalā wa kasād wa inqiṭāʿ by Muḥammad Amīn ibn ʿĀbidīn. I
have already mentioned the legal rulings with regard to demonetized fals, now it is time to
analyze the matter of rakhṣ and ghalā, devaluation or revaluation of a currency. This topic has
been of particular interest in modern times because the current fiat currency system is most
commonly compared to the fals currency system, therefore, many legal rulings regarding the
fals for good or bad are translated to fiat currencies.

Of importance is the work of Ibn ʿĀbidīn who has made some peculiar remarks while writing
his treatise. Major portions of the treatise are focused on the variant narrations from the early
Ḥanafī scholars, Ibn ʿĀbidīn tries to reconcile between these contradicting narrations and
establish the views of the three classical scholars prior to advising the best verdict to accept. He
argues that the contradicting narrations may be attributed to different opinions in different
times, it seems that Abū Yūsuf initially had the same opinion as Abū Ḥanīfa, but he changed
his stance later on. Ibn ʿĀbidīn, in his magnus opus titled Radd Al-Muḥtār, reiterates that the
fatwā of the Ḥanafī School (al-muftā bih) is the opinion of Abū Yūsuf in which he makes no
difference between kasād, inqiṭāʿ, rakhṣ and ghalā and obliges the payment of the value – not
mithl – on the day the loan/sale contract was concluded.229 I have summarized the final verdicts
of the scholars in the table below:

Table 4.2 : Legal rulings of fals in cases of demonetization, shortage, devaluation, and
revaluation.

Dayn from a sale contract Dayn from a qarḍ contract

kasād and inqiṭāʿ rakhṣ and ghalā kasād and inqiṭāʿ rakhṣ and ghalā

Abū Ḥanīfa Faskh Mithl Mithl Mithl

Abū Yūsuf Qiyma Qiyma Qiyma Qiyma

Muḥammad Qiyma Qiyma Qiyma Mithl

229
The Arabic reads as follows: wa ḥāṣilu mā marra annahū ʿalā qawli Abī Yūsuf al-muftā bihī lā farqa bayna
al-kasād wa al-inqiṭāʿ wa al-rakhṣ wa al-ghalā fī annahū tajibu qīymatuhā yawma waqaʿa al-bayʿu aw al-
qarḍ lā mithluhā. Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-Mukhtār, VII, 53.
77
A general maxim in Islamic jurisprudence reads: al-duyūn tuqḍā bi amthālihā, i.e., dayns are
paid in their mithl, i.e. in their contractual kind. If one borrows 100 dinars, he ought to pay back
100 dinars; if he borrows 100 fals, he ought to pay back 100 fals no matter the circumstances.
Abū Yūsuf, however, clearly supports the qiyma approach in all four cases. It is not only Abū
Yūsuf who holds this stance, there is a minority opinion in the Mālikī School which holds the
same stance too.230 Furthermore, while there is no discussion on the rakhṣ and ghalā of gold
and silver coins in the classical textbooks, Ibn ʿĀbidīn hints that it is a subject worthy of
discussion because we face the same scenario in modern times. Especially in the modern fiat
system, these discussions regarding devaluation of currency and the relevant legal rulings
should be analyzed thoroughly.

4.3.3 Securities: the suftaja, ṣakk, chāw and kāʾime

The use of securities in Islamic economics dates back centuries and has played a critical role in
the development of commercial and financial transactions. Handwritten documents, such as
contracts, letters, and ledgers, have been utilized to facilitate the exchange of information,
transfer of property and obligations, and enforcement of agreements in all economies. Perhaps
the most famous among these securities is the suftaja, a negotiable instrument originating in
Islamic law bearing the characteristics of a promissory note, trade acceptance, bill of debt,
check, draft, etc. The suftaja’s use is attested in and out of the Middle East from the eighth to
the fourteenth century CE, making it an early example of a security. Recent scholarly research
has examined the role of institutions in promoting economic growth and prosperity before 1500,
with some economists arguing that most regions of the world, including the Middle East, had
comparable levels of economic growth before that period. However, certain regions
experienced a “reversal of fortunes” due to the imposition of European extractive and exclusive
institutions that led to structural underdevelopment.231

The significance of securities in Islamic economic history has prompted scholarly research into
the nature and function of these instruments in pre-modern Islamic societies. This section aims
to provide an overview of the historical and economic contexts in which securities were utilized
in Muslim societies, focusing on the role of four main securities introduced during various

230
Ḥammād, “Taghayyurāt Al-Nuqūd wa Al-Aḥkām Al-Mutaʿalliqa bihā fī Al-Fiqh Al-Islāmī,” III, 761.
231
Acemoglu - Johnson - Robinson, “Reversal of Fortune: Geography and Institutions in the Making of the Modern
World Income Distribution,” 1231-94.
78
historical eras to facilitate commercial and financial transactions: the early suftaja and ṣakk, the
Ilkhanate chāw, and the Ottoman kāʾima.

4.3.3.1 The suftaja

The term suftaja, derives supposedly from Persian safta (firm, confirmed) plus chīz (thing),
because it certified a credit in writing.232 In Arabic, the singular is referred to as suftaja/siftaja,
while safātij/safātīj and suftajāt are used as its plural forms. The written promissory note gained
this name because the written document “solidifies” the debt/payment.233 The legal meaning of
the term is attributed to a rarely negotiable document or transaction that entails the commitment
to pay a debtor's creditor a certain sum of money in a location other than the place where the
debt was initially taken, or the issuance of a payment order to a third party (his partner, agent,
or proxy) acting as the recipient.234 In time, the use of these promissory notes has become
widespread and well-known, eventually taking up the figurative meaning of fame and
popularity as well.235 The word even became a proverb, kutubuhu safātij, i.e. his books are
suftaja, in order to convey that a writer’s books are famous or precious.236

A suftaja process is best described by an example: Person A sets out for a trip from Istanbul to
Amsterdam. In order to safeguard his wealth, Person A buys a suftaja in Istanbul from Merchant
B, who has a business partner located in Amsterdam, Merchant C. Person A and Merchant B
have now established ex-ante a relationship of trust, involving the exchange of financial and
commercial services over a long distance. Person A deposits his wealth with Merchant B, pays
a fee and gains a suftaja document in exchange. Upon arriving at his destination in Amsterdam,
Person A would cash in the suftaja document with Merchant B’s associate, Merchant C. Person
A gains the exact amount of capital he had “stored” with Merchant B in Istanbul.

The same system was also used to pay debts over a long distance. Instead of a three-partite
relationship between merchants, there is a creditor and a debtor, and perhaps an agent in
between. One could view this whole process from the perspective of lending out loans, as was
often the case by scholars of Islamic jurisprudence. It becomes apparent that the act of giving a
"loan" to Merchant A by Merchant B or someone attempting to make an international payment

232
Hayyim, New Persian-English Dictionary, II, 88.
233
Al-Tahānawī, Mawsūʿa Kashshāf Iṣṭilāḥāt Al-ʿUlūm wa Al-Funūn, I, 956.
234
Kallek, “Süftece,” DIA, XXXVIII, 19.
235
Al-Ḥawārizmī, Al-Amthāl Al-Muwallada, 256.
236
Ibn Baṭṭāl, Al-Naẓm Al-Mustaʿdhab fī Tafsīr Gharīb Alfāẓ Al-Muhadhdhab, I, 261.
79
was a common occurrence. This loan was then repaid or dispersed elsewhere by Merchant B's
associate, Merchant C, to either a traveler or a fourth party. Due to the regular correspondence
and transactions between Merchants A and B, their financial balances were cleared during these
bilateral exchanges.

Suftajas were not limited to commercial transactions but were also utilized in various financial
and fiscal dealings. They facilitated the “virtual” transfer of cash not only between merchants
but also among family members, armies, government staff and officials, including tax
collectors. These transactions involved forwarding sums to commercial agents and beneficiaries
of inheritance, as well as to charities such as donations to educational institutions or religious
foundations. Suftajas were issued and redeemed for both large and small amounts by merchants
who were based in towns or cities. It is likely that suftajas were utilized in limited niche markets
that operated within restricted trade network systems.

The Islamic primary sources regarding the suftaja are numbered, in fact, there are only two
narrations regarding these written documents: “Suftajas are haram”237 and a narration that
prohibits the use of suftaja,238 but these narrations have been in disfavor among Muslim scholars
due to their excessive weakness in the chains of narrators. Although there is no direct
prohibitive order, suftajas have been discussed both in terms of their nature and the legitimacy
of their use. In terms of its nature, there are four different views:

1. The suftaja is a qarḍ contract.239 The legitimacy of the qarḍ contract is based on a loan
contract aiming to eliminate the material debts of the needy and for mutual help
(taʿāwun) among people.240 The criticism that suftaja is not a qarḍ contract comes from
the same perspective, as the documents of suftaja are also issued in cases for the
classical sale contract, as well as salam and istiṣnāʿ contracts, which do not have the
charitable character as the qarḍ contract should.
2. The suftaja is a paid wakāla (mandate) contract.241
3. The suftaja is a form of aval (ḥawāla).242
4. The suftaja is an amāna.

237
Ibn ʿAdī, Al-Kāmil fī Ḍuʿafā Al-Rijāl, I, 437.
238
Ibid., IV, 227.
239
Shirbāṣī, Al-Muʿjam Al-Iqtiṣādī Al-Islāmī, 221.
240
Wizāra Al-Awqāf wa Al-Shuʾūn Al-Islāmiyya Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XXV, 227.
241
Al-Tamīmī, Tawḍīḥ Al-Aḥkām min Bulūgh Al-Marām, IV, 390.
242
Muṣṭafā et al., Muʿjam Al-Wasīṭ, I, 432.
80
Regardless of its nature, the transaction has been subjected to criticism243 under the assumption
that "kullu qarḍin jarra nafʿan fa-huwa ribā", i.e. “any loan that derives a benefit [to the lender]
is ribā”, because suftaja is most commonly used to protect oneself from the risks that can be
encountered on the road,244 and gives a one-sided benefit to the creditor because the costs of
transport are transferred to the debtor. However, various narrations indicate that companions of
the Prophet had used transactions which resembled the suftaja, such as ʿAbd Allāh ibn Al-
Zubayr, 245 other companions permitted the use of similar constructs as long as there were no
unjust conditions set in the agreement.246 Even the Prophet himself has arguably used a similar
construct.247 Moreover, the fact that the Hanbalī School negates the emergence of ribā in
contracts and agreements where both parties are benefitted, suftajas have been deemed to be
legitimate contracts according to the majority of scholars – even if prearranged.248 Suftaja has
taken an important position since the 7th century, especially in international trade, and it even
pioneered modern commercial papers. Some have even claimed suftaja to be the first version
of paper money.249

4.3.3.2 The ṣakk

Persian word chak (‫ )چك‬refers to an approved document or agreement, and has been used in
Arabic in the form of ṣakk (‫)صك‬.250 Both words share the same etymology and both languages
have the same meaning: “to hit” and “to beat”, referring to the beating of the hands when
making an agreement.251 Some Arabic dictionaries refer to ṣakk in broader terms, defining it as
any written document or official certificate.252 Therefore, different types of written records that
certify agreements, testimonies, or other official documents like the remuneration bill, payment
order, check etc. are all called ṣakk.253

243
Ibn Al-Humām, Fatḥ Al-Qadīr ʿalā Al-Hidāya, VII, 251.
244
Ibn ʿĀbidīn, Radd Al-Muḥtār ʿalā Al-Durr Al-Mukhtār, VIII, 22.
245
Al-Bayhaqī, Al-Sunnan Al-Kubrā, V, 575. Although it is said in some sources that the operation was done by
Al-Zubayr ibn Al-ʿAwwām, Abd Allāh’s father, in my opinion, it must have been a scribe’s mistake. There are
also narrations indicating that this process was carried out by both ʿAbd Allāh and Musʿab, the two sons of Al-
Zubayr ibn Al-ʿAwwām, one in Mecca and the other in Al-Kūfa. Cf. Al-Ṣanʿānī, Al-Muṣannaf, VIII, 140.
246
Ḥassan, “Sales and Contracts in Early Islamic Commercial Law,” 491.
247
Al-Ṣanʿānī, Al-Muṣannaf, VIII, 140.
248
Wizāra Al-Awqāf wa Al-Shuʾūn Al-Islāmiyya Kuwait, Al-Mawsūʿa Al-Fiqhiyya Al-Kuwaytiyya, XXV, 25.
249
Al-Miṣrī, Al-Islām wa Al-Nuqūd, 83.
250
Floor, “Čak,” IV, Fasc. 6, 646; Hayyim, New Persian-English Dictionary, VI, 596.
251
Ibn Manẓūr, Lisān Al-ʿArab, X, 456; Hayyim, ibid., VI, 596.
252
Al-Jawharī, Al-Ṣiḥāḥ Tāj Al-Lugha wa Ṣiḥāḥ Al-ʿArabiyya, IV, 1596.
253
Kallek, “Sak,” DIA, XXXV, 586, 587.
81
In the classical period of Islam, ṣakk (pl. ṣukūk, ṣikāk and aṣukk) referred to any written
document representing a contract or the transfer of rights, obligations or confessions. The term
was used to refer to paper forms representing financial obligations arising from trade and other
business activities in the period before the development of modern banking. Although there are
sources claiming that the first ṣakk took place in the Great Mosque in Damascus in the 7th
century CE,254 there are similar practices in the period of the Prophet, albeit under a different
name.255 It is known that Muslim merchants have systematically used checks or ṣakks since the
time of Abbasid Caliph Hārūn Al-Rashīd in the 9th century.256

In the year 641, when Muslims conquered Alexandria in Egypt, the reigning ruler ʿUmar ibn
Al-Khaṭṭāb ordered for food to be sent to the capital, Madina, and to be distributed to the people
because of a drought in the Hejaz. Twenty ships with a total of around 5 million kilograms of
food (wheat or barley), were brought to the shores of the Hejaz. ʿUmar, considering the huge
amounts that would arrive, had ordered for two storage rooms to be built at the shores and
commanded Zayd ibn Thābit (d. 45/665) to write paper ṣukūk (wa amarahū an yaktuba lahum
ṣikākan min qarāṭīs) for all households to cash in their ṣukūk for their due ration.257 While some
researchers have put forth that this is a medium of exchange and used these papers as an
example for money,258 it seems to be too farfetched to regard these papers as monetary
instruments in the broad sense, let alone as money.

The modern word cheque, a bill of exchange, was a written document in the Middle Ages for
payment of goods upon delivery. Some argue that the cheque is derived from ṣakk used by
Muslim merchants, which refers to the agreement and used to prevent the money from being
sold elsewhere.259 A less popular explanation argues that the cheque comes from the Persian
word chak.260

4.3.3.3 The chāw

In 693/1294, during the Mongol rule in Iran, a notable event took place—the introduction of
the chāw (Persian: ‫ چاو‬- čāw), a paper currency. This move was prompted by a financial crisis

254
Paldi, History of Sukuk, 2.
255
Abū Dāwūd, Kitāb Al-Zakāt, 24. Hadīth number 1629.
256
John B. Glubb, A Short History of the Arab Peoples, 105.
257
Al-Yaʿqūbī, Tārīkh Al-Yaʿqūbī, II, 154-55.
258
Sadr, The Economic System of the Early Islamic Period: Institutions and Policies, 141.
259
Kallek, “Sak,” DIA, XXXV, 587.
260
Ibn Manẓūr, Lisān Al-ʿArab, XII, 498-500.
82
that arose due to the extravagant expenditures of the fifth Ilkhanate ruler Gaykhatu (r. 1291-
1295).261 However, the situation was further exacerbated by the adverse effects of yūt
(Mongolian for the freezing-over of previously thawed snow, rendering the pastures
inaccessible, the same word is also used in old Turkish), which led to high livestock mortality
and affected regions as far as Iraq and Khorasān. The proposal to address the financial
challenges by implementing a paper currency system originated from ʿIzz Al-Dīn Muẓaffar ibn
Muḥammad ibn ʿAmīd, an advisor to the vizier (Ṣāhib Al-Dīwān) Ṣadr Al-Dīn Zanjānī (d.
1295). With the support of Bolad Ch’eng-Hsiang, who had prior experience with paper currency
during his representation of the founder of the Yuan Dynasty Kublai (r. 1260-1294), Ṣadr Al-
Dīn managed to convince Gaykhatu to approve the measure. To ensure acceptance of the new
currency, severe penalties, including death penalty, were imposed on those who refused to
accept the chāw or failed to exchange coins for the notes. Additionally, to further stabilize the
financial situation, the production of gold and silver vessels, as well as gold cloth garments,
was restricted solely to the ruler and the highest aristocracy.262 The objective appeared to be
concentrating precious metals in the hands of the government to mitigate the government
expenditures deficits.263

The initial circulation of the chāw notes took place in Tabriz on 19 Shawwāl 693/12 September
1294, according to Rashīd Al-Dīn, while Waṣṣāf suggests it occurred in Dhū al-qaʿda/October.
Unfortunately, the implementation of the paper currency system quickly led to adverse
consequences. Prices skyrocketed, experiencing more than a tenfold increase, prompting a
significant portion of the population to flee, and resulting in a recession in commercial activities
within the bazaars.264 The aftermath of the initial implementation witnessed a period of
approximately two months characterized by rioting and confusion. The government was
eventually compelled to permit the use of coins for the purchase of foodstuffs, and ultimately,
the chāw edict was rescinded within several months.

While historical accounts primarily focus on the effects in the Ilkhanate capital Tabriz and
provide limited information regarding Baghdad, Waṣṣāf mentions several provinces where
emirs were dispatched to establish chāw khānas (printing establishments). Moreover, even after
Gaykhatu’s overthrow by Baidu and the ascension of future il-khan Ḡazan, the interception of

261
Jahn, “Paper Currency in Iran: A Contribution to the Cultural and Economic History of Iran in the Mongol
Period,” 107.
262
Ibid., 120-21.
263
Ibid., 122.
264
Ibid., 133.
83
a consignment of chāw near Semnān in the spring of 694/1295 highlights ongoing efforts related
to the notes. However, Ḡazan cynically remarked that paper currency could not withstand the
region’s damp climate and ordered the burning of the notes and the associated machinery.

The chāw notes featured both a Chinese inscription and the kalima al-tawḥīd, the Islamic
profession of faith, presumably to accommodate Muslim sentiments. Furthermore, they were
issued in denominations ranging from a quarter-dirham to ten dinars, while the other historians
indicate that the lowest denomination was one dinar.265 Following these events, the use of chāw
gradually faded from historical records. The precise reasons behind this disappearance and
whether it represented a permanent abandonment of the paper currency system remain
uncertain. Nonetheless, the introduction and subsequent failure of the chāw provide valuable
insights into the challenges associated with monetary experimentation and the complex
dynamics of financial systems during that era. It seems to me that the imposition of the chāw
to nearly all forms of commercial transactions was a big leap of faith in the acceptance of the
general public. Forbidding the use of gold and silver in favor of the chāw implied the
inaccessibility of gold and silver for the common people. One can understand that this was a
very incremental and extraordinary change for a society based on bimetallism, one society was
not ready for yet.

Even though it is mentioned that the wazir Ṣadr Al-Dīn was cursed from the pulpits because of
the implementation of these evil papers,266 the chāw was too short lived to attract the attention
of Islamic jurists. That might be a plausible explanation for why I have found no mention of it
in any of the books of Islamic jurisprudence.

4.3.3.4 The kāʾime

The word kāʾime (Turkish pl. kavâʾim; Arabic s. qāʾima pl. qawāʾim) is of Arabic origin
meaning “standing; replacing something.”267 The kāʾime extracts its name from its use as a
replacement for the coins in circulation. In legal documents, kāʾime was denoted under several
different names: eshām kawāʾimi, evrāk nakdiyye, kavāʾim nakdiyye, kavāʾim nakdiyye
muʿtebere, varak nakdiyye, kawāʾim muʿtebere, kāʾime nakdiyye.268 It might be regarded as the
first example of paper money in the Ottoman Empire.

265
Al-Ghazāwī, Tārīkh Al-Nuqūd Al-ʿIrāqiyya li-Mā Baʿda Al-ʿUhūd Al-ʿAbbāsiyya, 33-36.
266
Ibid., 35.
267
Ibn Manẓūr, Lisān Al-ʿArab, XII, 498-500.
268
Akyıldız, “Kāime,” DIA, XXIV, 212.
84
In 1840, the Ottoman government initiated a financial experiment – the issue of paper money.
It was the beginning of a new era in the history of Turkish money. The Ottomans were aware
of the prior experiment of the Mongols with their paper money emission, the chāw.269 The
experiment continued until 1862 with many changes. The so-called paper money, kāʾime
eventually came to be hated by many locals, and when it was completely withdrawn from
circulation in 1862, the people rejoiced. The later years of the experiment are better known than
the early years, which require further investigation. The first phase of the Ottoman paper
money’s history from 1840 to 1852 is the subject of the following part.

The issuance of the kāʾime was initially due to a treasury crisis.270 In the past, when faced with
similar situations, Ottoman sultans had resorted to debasing the coinage, resulting in the
circulation of devalued currency in the early nineteenth century, prime examples are the beşliks
and altılıks, five- and six-piaster pieces respectively. However, in 1840, the Sublime Porte271,
the central government of the Ottoman Empire, opted not to pursue this expedient. They had
also previously sold short-term government obligations and issued notes of indebtedness,
resulting in considerable short-term debt owed mostly to ṣarrāfs or bankers of Galata, a
European-Levantine commercial suburb of Istanbul. In this instance, however, it was deemed
undesirable to resort to these expedients again, and the treasury needed funds for current
expenses. The need for funds was partly to build up the armed forces since Mehmet Ali's army
had defeated the Ottoman forces in 1839. The Porte undertook military measures that entailed
– as The Times of London newspaper dated 18 September 1840 describes – “enormous
expenses”, including promised new measures in law and justice, taxation, military service, and
civil administration.272 However, revenues failed to increase with the direct collection of taxes,
and customs duties did not produce much income due to various factors, including the
imposition of low tariffs on imports and exports caused by poor domestic grain harvest. The
Porte turned to the issuance of paper money in the form of kāʾime. While the exact date of the
first issuance is uncertain, contemporary accounts and documents – mainly a tezkere
(memorandum) – suggest that it occurred in 1840.

269
It seems that the former Minister of Education (wazīr al-maʿārif) of the Ottoman sultanate Munif Pasha (d.
1910) had done extensive research into the Mongol paper currency during the kāʾime experiment of the
Ottoman state.
270
Karakoç, “Osmanlı Devleti’nde Kağıt Paraya Geçiş Sürecinde Evrâk-ı Nakdiyyenin Yeri ve Etkileri,” 44.
271
Bāb-i ʿĀlī is the name given to the palace of the grand vizier during the Ottoman Empire. Grand Vizier
(Ottoman: ‫ ;صدر اعظم‬sadr-ı aʿẓam) or wazīr-i aʿẓam (Ottoman: ‫ )وزير اعظم‬was the highest ranking statesman in
the Ottoman Empire who managed state affairs on behalf of the sultan.
272
Davison, Essays in Ottoman and Turkish History, The Impact of the West 1774-1923, 60-61.
85
According to the memorandum, the sehm kāʾime would be circulated as much as half the salary
of civil servants (not the armed forces) and as a provision payment to the government.273 In the
second memorandum published later (referring to the first), it was announced that the kāʾime
would “nakid hükmünde tedavül etmek”, i.e. circulate as an equivalent of cash.274 So the
question arises: was the kāʾime a legal payment instrument? Government statements often
emphasized that the kāʾime is equivalent to cash or coins. In the official gazette announcement
of the second kāʾime series, it was stated that they (and of course the first series) “will
necessarily be valid and up-to-date everywhere under the Ottoman rules.”275 Amongst the
copies that have survived to the present day (unfortunately, none of the first issues in 1840 have
survived), the words evrāk nakdiyye (cash papers), evrāk muʿtebere (valid papers), or kāʾime
muʿtebere (valid document) or combinations of these words are found. However, only
government offices were obliged to accept them. It seems that private individuals could not be
compelled to accept this, making it hard to define kāʾime as a legal means of payment under
modern economic and legal terminology, i.e. kāʾime could hardly be defined as a legal tender.
Moreover, they, unlike early examples of paper money and bills of exchange, were initially not
introduced as paper money, but were hand-made papers with official stamps, issued as interest-
bearing debt securities and treasury bills. While economists will argue that it was an interest-
based debt instrument, some Muslim scholars argue that kāʾime is based on al-muʿāmala al-
sharʿiyya, which has a sound basis according to the Hanafī scholar Abū Yūsuf.276

4.3.4 The introduction of paper money

I have briefly mentioned the introduction of paper money into the monetary system while
discussing the history of money. It may seem that - from an economist’s perspective - paper
money is the most logical and incremental path to take in the development and monetization of
the market, nevertheless, there have been many opponents of a monetary system without the
use of hard money. James Madison (d. 1836 CE), one of the Founding Fathers of the United
States of America, objected to a draft of the Constitution because it was inadequate in checking
the mischief of paper money, something that causes “rights of individuals infringed by many
of the state laws – such as issuing paper money, and instituting a mode to discharge debts

273
İnalcık, “Tanzimat’ın Uygulanması ve Sosyal Tepkiler,” 672-73.
274
Davison, ibid., 63.
275
Osmanlı Resmi Gazete, “Takvîm-i Vekâyiʿ.”
276
Süleyman Kaya, “17. Yüzyıl Sonlarında Muhalif Bir Metin: Muhammed b. Hamza El-Aydınî'nin Beyʿu'l-ʿÎne
Risalesi,” 103-5.
86
differing from the form of the contract.”277 William H. Gouge, a major figure in the creation of
the Independent Treasury system and a staunch opponent of paper money, writes “We,
however, because we have never changed our money of account, fancy that we have never
changed our standard of value. We call a Bank dollar by the same name as a silver dollar, and
then fancy there is no essential difference between them.”278 In that same work, he argues for
the abolishment of paper money. Even though the general trend in monetary debates have
shifted from paper money to bank money, cashless societies, and cryptocurrency, one may
notice that such debates get reignited during times of crises, as is the case with the current rise
in inflation across the world.279 Moreover, it seems to me that Islamic economics has not been
able to fully devour and digest the idea of fiat or paper money. Therefore, I would like to
dedicate the current chapter to the discussion of paper money in Islamic jurisprudence. Aḥmad
Ḥasan has conveniently summarized various Islamic rulings attributed to paper money in his
book titled “paper money in Islamic economics: its value and its rulings”,280 which has largely
been translated to English and adapted to a journal article by Nikolaus A. Siegfried under the
name “concepts of paper money in Islamic legal thought.”281 Subsequently, several authors
have copied and adopted their categorizations of money concepts: While Ḥasan categorizes six
views on money, Siegfried and many other researchers include only five. I – for convenience’s
sake – have reduced the views to only three:

4.3.4.1 Paper money is a precious metal derivative

According to this stance, paper money is either a bond (dayn) on the deposit of gold and silver,
or a precious metals backed derivate. According to the first perception, paper money is no more
than written forms of debt (dayn) and when used as currency, they only represent the relevant
hard money currency. This view corresponds to the emergence of paper money in the 18th and
19th centuries and was an accurate description of the paper money for that time. However, fiat
money has undergone significant change since then, and considering the uncoupling of the gold
standard in the UK in 1931 and in the US in 1971, this approach does not represent reality any
longer. The current paper money does not at all represent a deposit of hard money whatsoever,
making this view unacceptable from an ontological perspective. Moreover, accepting paper

277
Yahya, “Inflation and Paper Money: An Historical Perspective,” 34.
278
Gouge, A Short History of Paper Money and Banking, 34.
279
Cf. Yahya, “Inflation and Paper Money: An Historical Perspective,” 1-2.
280
Ḥasan, Al-Awrāq Al-Naqdiyya fī Al-Iqtiṣād Al-Islāmi Qiymatuhā wa Aḥkāmuhā, 166-215.
281
Siegfried, “Concepts of Paper Money in Islamic Legal Thought,” 327-32.
87
money as a bond, i.e. a dayn, will cause inevitable incoherences and obstructions in the zakāt
and ṣarf of paper money. Among those who hold this view are Aḥmad Al-Ḥusaynī (d. 1914),
Muḥammad Al-Amīn Al-Shinqītī (d. 1974), and the scholars of the Egyptian Azhar university.

According to the second perception, paper money is a gold or silver derivative. This view states
that paper money has no intrinsic value but argues that paper money is derived from gold and
silver, and hence takes its value (partly) from those metals. Essentially, any rulings that apply
to gold and silver apply to paper money as well because paper money is backed by gold and
silver. This view might have been correct in the initial phases of paper money, but it is clear
that since 1971 such an argument does not hold. Among its proponents are ʿAbd Al-Razzāq
ʿAfīfī (d. 1994) and the research department of the Islamic Development Bank.282

4.3.4.2 Paper money is a commodity other than gold and silver

This stance argues that paper money is not gold and silver and is also not derived from it.
Accordingly, paper money has to be a commodity (māl or ʿurūḍ). This opinion too has two
different approaches.

According to the first group of scholars, paper money itself is a commercial good (sing. ʿaraḍ
pl. ʿurūḍ) subject to exchange, its value is determined by the general principles of supply and
demand. Proponents of this view argue that thamaniyya is limited to gold and silver, hence
paper money cannot be regarded as money and should fall by default under the normal
commodity category. Moreover, like any other commodity, paper money may be the cause/aim
(maqṣūd) and the desired object (margūb fīh) as well, effectively making it a commodity. This
view poses a major problem when evaluating ribā, frankly, if evaluated according to the
classical four schools of thought, paper money would never fall under the ribawī goods,
effectively making the rulings on ribā in modern economics obsolete. Moreover, both its zakāt
eligibilty and being the capital of a muḍāraba contract would be disregarded, making it even
hard to accept as money at all. On top of that, it is crystal clear that using paper bills to pay for
a good can not be equated to the sale of paper. Among those who held this view are ʿAbd Al-
Rahmān Al-Saʿdī (d. 1957) and Halil Gönenç.

A second group of scholars argue that paper money is factually a commodity (māl) unlike other
commodities and has the same ruling as fals. The scholars arguing for this view see paper

282
Ibid., 11.
88
money similar to cheap metallic coins, i.e. fals, and claim that these papers are ʿurūḍ in essence,
but because of the agreement of people (al-iṣṭilāḥ) they gain thamaniyya and become money,
similar to fals. So the same rulings with regard to fals apply to paper money as well: as long as
paper money is in circulation (rawāj) it is thaman, when it goes out of circulation, it returns to
being a commodity, making banknotes mere monetary numéraires (taqdīrātun thamaniyyatun).
Furthermore, as a natural consequence of accepting paper money as urūḍ, a group of these
scholars argue that no ribā occurs in the trade of paper money with gold or silver283 and that
paper money is only eligible to zakat if stocked for commercial purposes.284 Another group,
however, argues that from a zakat and ribā eligibility perspective, paper money should take the
rulings of gold and silver. This view has been accepted by a major group of scholars, among
them are Aḥmad Riḍā Al-Baralwī (d. 1921), Aḥmad Al-Khaṭīb Al-Jāwī (d. 1916), and Muṣṭafā
Al-Zarqāʾ (d. 1999).

4.3.4.3 Paper money is a unique form of money

This view argues that paper money should not be categorized together with gold, silver, fals,
commodity monies, or any other precedent of money. It is a form of money which needs
individual rulings according to its own essence; paper money in and of itself has different forms
and would require a different approach accordingly.285 This is the view of the great majority of
Muslim scholars and modern day international fatwā commissions.286 The same rulings that
apply to gold and silver pursuant to the ṣarf, ribā, and zakat rulings apply equally to paper
money.

283
Al-Baralwī, Kifl Al-Faqīh Al-Fāhim fī Aḥkām Qirtās Al-Darāhim, 58-59.
284
Al-Khaṭīb, Iqnāʿ Al-Nufūs bi Ilḥāq Awrāq Al-Anwāt bi ʿUmla Al-Fulūs, 48.
285
Munīʿ, Al-Waraq Al-Naqdī Ḥaqīqatuhū Tārīkhuhū Qiymatuhū Ḥukmuhū, 126.
286
There is another rather extreme view with regard to paper money: some Muslim scholars have asserted that
paper money is no commodity (māl) at all because it has no utility in and of itself (i.e. it has no intifāʿ), so
paper money cannot be considered a commodity per Islamic jurisprudence, let alone Thaman. Subsequently, it
cannot take the role of money. According to this view, transactions between a commodity and paper money
are all invalid. Moreover, rulings relating to zakat, ribā, salam, etc. are all obsolete because paper money is
not a commodity. The incoherence of this view is apparent and requires no further explanation. Proponents of
this argument are ʿAbd Al-Ḥamīd Al-Shirwānī (d. 1883) and Imran Hossain.
89
 5 CONCLUSION

In conclusion, the exploration of monetization and demonetization in Islamic economics,

traversing the evolution from minted coins to paper instruments, has illustrated the multifaceted
dimensions of economic thought within the Islamic paradigm. This thesis has undertaken a
comprehensive journey through historical accounts, investigating the intersections of economic
principles, Islamic jurisprudence, and the pragmatic necessities of governance.

The theories of metalism and chartalism represent contrasting views on the nature and origins
of money, offering distinct perspectives on the fundamental principles that underpin monetary
systems. Metalism posits that money derives its value from the intrinsic worth of the physical
material from which it is made of. Historically, metals like gold and silver have served as
commodity money due to their scarcity, durability, and divisibility. In a metalist framework,
the value of money is inherently linked to the tangible properties of the substance it is composed
of, making it a store of value and a medium of exchange. Proponents of metalism argue that the
use of precious metals as money provides a stable and trustworthy medium for transactions.
The historical prevalence of gold and silver coins in various cultures underscores the enduring
appeal of metalist principles. However, critics point out limitations such as the constraints on
money supply and potential volatility tied to fluctuations in the availability of metal resources.

Chartalism takes a markedly different stance by asserting that money's value is not intrinsically
tied to any physical commodity but is instead a product of government decree or fiat. In other
words, money has value because a government declares it legal tender and accepts it for tax
payments. This theory challenges the traditional notion that money must have inherent value
and asserts that its acceptance is fundamentally a matter of trust in the issuing authority.
Chartalism emphasizes the role of the state in creating and maintaining a functional monetary
system. Advocates argue that this approach provides greater flexibility for governments to
manage their economies, particularly during periods of economic downturn. Critics, however,
express concerns about potential inflation and the need for responsible fiscal policies to
maintain confidence in fiat currencies.

Islamic jurisprudence discerns between khilqī and istilāḥī money on one side, and dayn and
ʿayn on the other. The distinction between khilqī and istilāḥī money resembles the metalism
and chartalism distinction. The metalism perspective has been leading in Islamic legal history,

90
which is not a surprise considering the dominance of gold and silver as currencies. However,
with the demonetization of the silver and gold standard, there is nearly no country where golden
and silver coins are considered legal tender. Moreover, gold and silver are mainly used as
jewelry, effectively putting gold or silver in the role of ʿayn in a contract. Despite these facts,
many researchers argue that gold and silver remain as khilqī money and, to some degree,
consider modern forms of money inferior. In light of the abovementioned, I like to argue that a
distinction between khilqī and istilāḥī is only theoretical of nature and has no practical
implication any longer. Gold and silver are only considered thaman if accepted as such in that
specific time and place. Gold may become the thaman of a transaction as it may become the
mabīʿ. Furthermore, in cases of demonetization, shortage, devaluation and revaluation of
currencies, the general rule is that al-duyūn tuqḍā bi amthālihā, i.e., dayns are paid in their
contractual kind. However, there are several notable Islamic jurists who have given verdicts
that a debt must be settled in its qiyma and not in mithl. This view is ascribed to Abū Yūsuf
and, in my opinion, should be investigated further as to see what its practical ramifications
would be.

The trajectory of monetary evolution within Islamic economic frameworks underscores the
adaptability and resilience inherent in Islamic economic systems. From the early use of minted
coins during the time of the Prophet to the contemporary era marked by complex paper
instruments, the Islamic economic landscape has witnessed transformations responding to
contextual needs while remaining rooted in ethical and Sharia-compliant foundations.
However, there is a clear struggle in settling with modern advancements in monetary
developments. While the classical rulings regarding monetary regulations are quite clear, they
seem to be insufficient for the current economic developments. Historically speaking, paper
money endeavors in the Muslim world initiated very early when compared to the West. The
emission of the chāw and the practical accounts surrounding the suftaja testify to this fact.
However, it seems that the metallist perspective is dominant among Islamic jurisprudents and
this trend continues to this day, causing this metallist perspective to pervade into the notion of
paper money and bank money, even though both forms of money have distinct features. Islamic
scriptures remain silent on what exactly should be considered money and what exactly the
process of monetization is, however, modern academics have accepted the metallist narrative
and focused the discussions on these outcomes.

91
Furthermore, Islamic history packs several pioneering developments with regard to monetary
evolution, being able to standardize the gold and silver currencies to unprecedented heights and
adopting several forms of paper instruments. However, the struggle with the gold standard,
inflation-interest dichotomy, unresolved objections to fiat currency has never truly given
Islamic economics the right course of actions to set up an Islamic monetary policy. Islamic
economics will not be able to answer current monetary issues such as rising inflation, interest
policies and the monetization of money itself without dealing with the gold standard anchored
in Islamic economics and the fiat currency system in the modern economies.

92
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