Classical Islamic perspectives on monetary theory

Abstract EN

Within the wider framework of monetary theory, this study focuses on a review of classical Islamic perspectives on monetary theory.

In 1792 in America, the official price of gold was USD 19.3939/oz, whilst in 2021 the average market price of gold is about USD 1,800/oz, thus one dollar in 1792 is now only worth 1 cent in 2021 (19.3939/1,800).

Most of this devaluation occurred since 1971, which represents a catastrophic collapse in the store of value function of money over the past fifty years, confirming a failure in contemporary monetary theory and policy in achieving monetary and price stability under the fiat standard.

The loss of purchasing power as a result of this devaluation is so profound that the associated confiscation of wealth, due to inflation, has undermined all wealth creation in real terms.

Fiat currencies have now discovered their true intrinsic wealth and are essentially worthless.

By conducting a survey of classical Islamic literature, this study seeks to re-examine our understanding of money to encourage monetary reform to develop future solutions, given the failure of the fiat standard in satisfying the objectives of the sharīʿah (maqasid al- sharīʿah) in terms of protection of wealth (hifiz al-māl) and imparting social justice.