Expert View

Paper Money

Recent debates in social media still point to a level of unease about what constitutes currency in Shariah and doubts remain about paper money.

Some claim that paper money is Haram, and insist that only gold and silver are legitimate currencies. Others demand that paper money must be backed by gold and silver. Some see paper money as a product of the interest-bearing international banking system, and therefore non-Shariah compliant.

Some of the statements made concerning currencies in Shariah claim that Fiat currencies are Haram since they are based on debt and interest, while other statements claim that Shariah requires a currency to have intrinsic value.

Nothing could be further from the truth. Shariah does not require a currency to have intrinsic value nor does it forbid Fiat currencies. Paper money is Halal. This has been shown time and time again throughout the history of Islamic Jurisprudence including the modern era.

First, let’s review the currency situation in the early Islamic period before analyzing the permissibility of paper money.

During that period, gold and silver were the currencies, and they are mentioned in The Quran as Dinar (gold), and Dirham (silver). The word “Waraq” is also mentioned and the interpreters deemed it to refer to silver. There were also some coins made of copper that were called “Fuloos”, in small denominations. When someone only has a few Fuloos, he was considered bankrupt, from which the word “Taflees” originates.

Byzantine coins remained accepted for some time in the first Islamic century, although very early on, governments began striking their own coins, first silver and then gold. Because the quality of the first coins was poor and therefore variable, they were weighed instead of counted, indicating that their value was based on content rather than as a unitized medium of exchange. Some silver and copper were however counted, indicating that the idea of money as units was considered.

The history of money and coinage in the Islamic world is far too long to recount, however suffice it to say that it took many shapes and varieties of different minting throughout the ages under different leaders. There has even been a brief but failed attempt at paper money by the Mongols in the 13th century.

Of course, there have been throughout history some scholars who have argued for gold and silver only money, but without any convincing evidence from Shariah. I say not convincing since the main evidence of the proponents of gold and silver rely mainly on the custom of its usage during the early time period, as well as on its mention in the Quran as money, as opposed to a clear and unequivocal text either from The Quran or The Hadith.

They also regard gold and silver to be money by nature, and refer to some scholars who have limited the characteristic or causation (Illah) of riba and zakat to only gold and silver, as they are a measure of value (Thamaniyyah).

 The oponents of the exclusivity of gold and silver as money, in my opinion have a stronger case, as they rely on the basic principle that everything is permissible unless it is clearly forbidden in The Quran or The Sunnah. There is nothing unequivocal that limits money to only gold and silver.

They also evaluate customs by their meanings and not their appearance. Whilst gold and silver were the main money items, it was due to custom and availability and not any Shariah sanction.

They reject the idea that the measure of value argument; that attracts riba and demands zakat; is limited to only gold and silver. Other items can have those characteristics and thus the “Illah of Thamaniyyah” exists in them as well.

A very strong tool at the disposal of scholars is termed “Qiyas”, which is reasoning by analogy that aims to deduce laws. Qiyas has been considered one of the four main sources of law after The Quran, The Sunnah, and Consensus (Ijmaa). By performing Qiyas scholars attempt to discover the cause (Illah), which is the characteristic that attracts laws into action. The Illah therefore of gold and silver that triggers riba and zakat are their properties of measure of value and store of wealth (Thamaniyya). Paper money has the same characteristic.

The opponents of money as only gold and silver, it must be said, also have a very big arsenal to defend their view in the personalities that have ruled on this issue. I name and quote three of the most famous ones.

A well known story from very early on during the reign of the second Khalifah (Caliph), Umar Ibn Al-Khattab (RAA) (584-644 A.D.) tells of him advocating the making of money out of “skins” of camels, but was advised against it due to the lack of enough animals. This clearly shows that he didn’t view money as exclusively gold and silver.

Another great scholar, Imam Malik bin Anas (711-795 A.D.); for whom is attributed one of the four main schools of thought, Al-Maliki; states in his book (Al-Mudawwanah: Kitab Al-Sarf):

“If the people were to agree amongst themselves on using “skins” (as money), such that these were made into coins and monetary units, I would dislike these to be sold for gold and silver with deferred payment.”

This clearly shows Imam Malik’s view that “skins” as money would have acquired the same attributes, as gold and silver, and the rules of currencies forbidding deferred delivery must be maintained.

Our third personality is one of the most influential of scholars in the history of Islamic Jurisprudence, Ibn Taymiyyah (1263-1328 A.D.) himself who stated in his Fatawa:

“As for dirhams and dinars, there is no natural or Shariah definition for these; however, the matter returns to habit and terminology. This is because the basic principle is that the objective is not these coins in themselves; rather, the objective is that they should be a standard for mutual transactions. Dirhams and dinars are not sought for themselves. Rather, they are means by which mutual transactions are carried out, and this is why they serve as money … A pure means, the substance or form of which is not an objective in itself, achieves the objective, whatever it may be.”

You cannot get a clearer explanation than that.

Discussions and disputes continued till our modern era, with the supporters of gold and silver claiming that paper money has no intrinsic value and therefore not permitted, and that paper money is easily torn or destroyed and therefore not fit for currency, or even that it’s nothing but a debt instrument and therefore it’s not permitted to be traded.

None of these arguments hold a strong Shariah proof against paper money to the modern scholars.

We can now jump to the modern era.

 In 1971, Shaikh Abdullah bin Sulayman bin Mani, of the Council of Senior Scholars of Saudi Arabia issued a paper arguing for the permissibility of paper money, a long document detailing some of the above history and arguments on both sides. A few quotes would be sufficient to give the type of conclusions made:

“Money is thus whatever is agreed to be such, whether by government authority or public practice. Regarding gold and silver as having been created for money thus lacks support from a legal, theoretical, or historical perspective.”

And as for those who assert that paper money is debt, Shaikh Abdullah states:

“This is precisely the secret of the validity of paper money, since its value is not intrinsic but guaranteed by government. This does not imply that it is an IOU or debt since it cannot be redeemed in gold and/or silver.”

In September 1973, the Council of Senior Scholars of Saudi Arabia reviewed the characteristics of paper money and the history of gold and silver, and the backing of such currencies by gold and silver. They also discussed the issue of whether paper money is in fact a debt instrument. They re-iterated the sayings of both Imam Malik and Ibn Taymiyyah noting that currencies are not dependent on their nature and their usage is based on custom. They also came to the same conclusion concerning the riba and zakat aspect of paper money as well as the forbidden rule of forward sales of currencies against each other. Their view was that paper money is not Haram. 13 scholars signed the Fatwa of the Council with 2 abstentions, one of which later approved the ruling.

Our final stop is in the modern era, in 1982, when the Islamic Fiqh Academy in its 5th session held in the city of Makkah Al-Mukarramah issued a ruling on paper money:


  • The origin of money is gold and silver. The characteristic (Illah) of riba that occurs within them is due to their measure of wealth and store of value (Thamaniyyah), based on the strongest views amongst the scholars. The characteristic of a store of value is not limited to only gold and silver even though originally it was so.
  • The paper currency that exists today has become a store of value and has replaced gold and silver as a means of payment, because the community has accepted it as a store of value and as a means of payment even if its value is not the paper but the trust that is placed in it in commercial dealings.

Therefore, members of the Council of Islamic Fiqh Academy have decided that the paper currency is a stand-alone currency, which takes all the laws of gold and silver. That includes the legal prohibition of the riba al-fadl and riba al-naseea, the compulsory zakat and other laws. This is based on qiyas (analogy) of the existing currency against gold and silver. The Ruling was signed by 18 members with no abstention.

The conclusion is clear. Paper money has replaced gold and silver and serves as a store of value and a medium of exchange in the market. The rules of riba, zakat, and sarf (currency exchange) apply to it equally. There is no absolute text in Shariah making gold and/or silver the exclusive currencies. Very important scholars have throughout history asserted the same view.

I believe the unease with paper money is a product of a lack of knowledge of Shariah, history of jurisprudence, and how rules are formulated. It is perhaps also a product of a level of discomfort with the interest based international banking system of which paper money is seen as a symptom.




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