Session 9

Money and Inflation

Money in the Islamic economic system

Islamic Money
Historical record: from the time of the Prophet to Abd al
Malik,
Dual currency system
Functions of money in Islamic Economics
Are gold and silver money by nature (created as money)?
Monetarization of the economy as an Islamic value
Trading currencies
Money, a commodity or not? Or can it be?
The effect of prohibition of Riba on money
Price of money, price of debt and price of capital

Money in the Islamic economic system

history of money:
From barter to monetary economy
Commodity money, metal money, fiat money, electronic money

What is money?
Money is a claim on the society
Compare with claims on individuals
M1, M2 and nature of current accounts claims on banks

Money Functions:
Medium of exchange
Measure of value
Store of value
Measure of future value
Unit of account

Money and prohibition of Riba

Kinds of Riba: Riba of debt and Riba al Fadl
Why Riba al Fadl is prohibited: price discovery, balance
(justice) and avoiding an excuse to Riba of debt
Why Riba of debt is prohibited? Where is the injustice in
it?
Riba and Mudarabah: in both you earn without working
Riba and rent: both are pre-fixed and both guaranteed
Does prohibition of Riba change functions of money?
Economic and social effects of prohibition of Riba

INFLASION: CAUSES OND SOLUTION

INFLATION

Definition
kinds
Velocity of money
Inflation and unemployment and Cases of
Inflation and unemployment
General description of its causes: Demand
increase or cost increase
Is Riba a cause of inflation?

INFLASION: CAUSES OND SOLUTION

CAUSES OF NFLATION
Money/credit issuance
modus operandi of deficit finance
Cost pressure (wages, oil, food prices, etc.)

Causes of inflation in developing countries:

government monetary policy, government
aggressive spending, import prices, foreign
exchange rates
Inflation in the Muslim history: From time
of Omar to time of Mamluks
What is the problem with inflation?

INFLASION: CAUSES OND SOLUTION

DEALING WITH INFLATION

Treating its causes: Essentially budget
deficit: Experience of Turkey, Sudan:
A package of fiscal and monetary policies
Is interest a compensation of inflation?
Role of State: deficit finance, import policy,
spending policy, income and pricing policies
Is indexation a solution? Fiqh Academy
resolution