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 Ezry Fahmy Bin Eddy Yusof 
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Page 1 of 22
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The Role of Money as a Medium of Exchange and price of goods sold(
thaman al 
‐
mabi’ 
) according to Islamic law of Transactions
Ezry Fahmy Bin Eddy Yusof 
1
 
Abstract
Money is a commodity or token that everyone will accept in exchange for thethings they have to sell. Different societies have different monies. The purpose of money is to facilitate the transfer of value over space and time. In other words, weuse it to exchange wealth geographically, and to provide for future payment. Withoutmoney, which is in effect an intermediate good used for trading, it would becomevery difficult to have a division of labor, such as specialization, and everyone’sstandard of living would suffer. In this paper we will try to re-evaluate the argumentson the types and functions of money according to the previous and modern literatureswrote by the Muslim scholars. Then the paper continues analyzing various
 fiqhi
 opinions about type of money according to Islamic scholars and compares it with theexisting monetary framework. Lastly, the paper discusses on the idea of just priceaccording to history Islamic economic thought.
1
Degree in Bachelor of Economics (Honours) from International University Malaysia. Currently pursuing ChartedIslamic Finance Profesional (CIFP) program at the International Centre for Education in Islamic Finance (INCEIF).
 
 Ezry Fahmy Bin Eddy Yusof 
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Page 2 of 22
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1.0
 
Introduction
The real nature of money is obscured by the vocabulary of finance, which is doublespeak.We use the term "investors" for speculators, whose gambling destabilizes global financial markets.We use the terms "money," "capital," "assets," and "wealth" interchangeably-leaving no simplemeans to differentiate money from real wealth. Money is a number. Real wealth is in food, fertileland, buildings, or other things that sustain us. Lacking language to see this difference, we acceptthe speculators' claim to "create wealth," when they expropriate it.The classical legal scholars do not develop a concise theory of money, thus many questionrises about the role of money and its functions in pricing matter especially in Islamic law of transactions. The classical texts highlight three questions: is there a difference between raw metal asa good and struck coins as a medium of exchange? What is the exchange rate between gold andsilver? And what is the basis for using conventional (or fiat) money, which has an exchange valuethat exceeds the intrinsic value?To answer all above questions modern Muslim scholars of law have draw heavily on theclassic opinions discussed in the previous question. However, contemporary Muslim scholarsexplicitly draw on sources from various schools of law, about the legal status of role of money andit functions in pricing. We will discuss further some of the question rises and analyze it according tosome literatures and try to comprehend both the classical and modern Muslim scholars regardingthis issue.
2.0
 
Issues in Type of Money
 
 Ezry Fahmy Bin Eddy Yusof 
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Page 3 of 22
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2.1 Gold and Silver (Dinar and Dirham)
Primitive peoples used shells, beads, elephant tusks, furs, skins, and livestock and duringancient time they used gold, silver, copper, iron and bronze as a medium of exchange. However, thechronology changes as the time passed by. The Muslims have used the dinar and dirham since theera of Prophet Muhammad (pbuh) and the
 Khulafa’Ar-Rasyidin
. The dinar is specified havingweight of 22-carat gold equivalent to 4.25 grams with a parameter of 23 millimetres. The other currency that inherited from the Islamic tradition is the silver Dirham which is specific in weight of silver equivalent to 3 grams (Nik Norzrul
et. al 
., 2003).We have noticed that the history have shown us the world are changing its medium of exchange and units of account from the barter system until it become monetary system. Throughoutthe history we could not denied the fascinating facts when the civilization from time to time usinggold as their medium of exchange.
2.1.1
 
Advantages of Gold as Money
There are several factors that the civilizations are using gold and silver as their money,mainly as medium of exchange, it is because several factors that will be explains below.
(i)
 
High density and value-
Gold is a mineral that is hard to obtain and desired by allraces all over the world. This make gold is high in value. Because of its high density,small quantities of gold have a high value.
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