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Is Paper Money Islamic?

Updated on November 23, 2015
Mysterious Eye of Anti Christ on the first One Dollar Note
Mysterious Eye of Anti Christ on the first One Dollar Note
Rise in gold prices in last 10 years but sudden rise since 2009.
Rise in gold prices in last 10 years but sudden rise since 2009.

Paper money is used all over the world today and the Shariah rules, which were supposed to be applied on Gold and Silver money, are now being applied on Paper Money in the Muslim World. The Paper money can be divided into two types; one that is issued against gold and the other that is not issued against gold, but has value because of a government regulation or law. This second type of paper money is called Fiat money. The US dollar or for that matter most of the world currencies used today, are in reality this Fiat money. Even the paper money that is issued against gold, is not proper Islamic, but there should be no doubt regarding the Fiat paper money being in-Islamic. Let us see what the Granada Fatwa says about it.


Therefore we declare a Fatwa in Granada, for all the Muslims, by which:

“After examining all the aspects of paper-money, in the Light of the Qur'an and the Sunnah, we declare that the use of paper-money in any form of exchange is usury and is therefore haram. It is not permissible for the Muslim to accept or to give paper-money in a commercial transaction. It is an obligation on the Muslims to abandon usury and to introduce new media of exchange, or money, and the best way is to follow the sunna of the Messenger of Allah (Peace be upon him), by using gold and silver, or any other merchandise commonly accepted as a medium of exchange.”


In this regard the work of 'Shaykh Abdulqadir as-Sufi' is worth reading. Born with the name Ian Dallas, a Scottish national who is vigorous in recommending the Islamic economic system by using the gold and silver in daily lives and abandon the “less useful” paper currency.

Abdulqadir is an ex-playwright and actor who embraced Islam in 1960, in the history of his life, he strove in fighting the capitalist system of the West and called for a return to the Islamic laws

Shaykh Abdulqadir has written hundreds of articles explaining this.


Now this can be explained with a simple example. All the religious schools of thought agree that 'Investment Certificates' or Bonds based on a mere promise of the issuing authority, are 'haram'. The fiat money also falls in the same category. The promisory statement used to be mentioned over the notes, which vanished with the passage of time.


Bay al-Sarf is a contract of exchange of money for money.

The rules of bay al-sarf derive largely from the well known Hadith:

"Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt - like for like, equal for equal, payment being made on the spot. If the species differ, sell as you wish provided that payment is made on the spot".
(Hadith--- Muslim).

From the above Hadith, clear conclusion can be derived that the currency has to be something material—any commodity, if not Gold.


Fiat paper money is entirely different from currency based on gold and silver in terms of nature and properties. The main difference is the fact that gold/silver currency does not depreciate or devalue, while the other does. The devaluation causes inflation and the paper money continuously loses it purchasing power. Applying the Usuary/Riba Shariah Laws of gold/silver currency over fiat paper money lacks sense and justification.

The miracle of Gold is the fact that ‘one could have bought the same amount of "food grains" with the same amount of gold some 1400 years back, as today. Thus we see that gold suffered no devaluation in around 1400 years.

But this is no coincidence, but a carefully planned Monetary Policy by The Lord. The scarcity or value of Gold is controlled by Almighty Allah, as iron, copper, zinc and other metals failed to maintain the same value. Iron became so cheap that all buildings today use tons of iron. But it is a miracle in itself, that the value of Gold remained constant for centuries in-spite of the astonishing advancement in mining and exploration technology. Even the Bible says that; “Gold belongs to God”.

This miracle was required as the Islamic System of Zakat (Tax) is based on the financial status of a person measured in terms of Gold. The nisab (amount) of money is the price of 85 grams of 999-type (pure) gold, on the day in which Zakat is paid. If the gold had become cheap like most other metals, the system of Zakat may have become unpractical. A person then could have assets worth more than the value of 85 grams of gold, but not enough money to feed his children and thus not deserving Zakat. Thus, if God had to make the welfare system of Zakat practicable, He had to constantly maintain the scarcity or value of Gold - which He did.

One more aspect is very interesting here; during the times of Prophet Mohammad (PBUH), there was no functional utility of gold and it had value because of its scarcity, but today gold is an important raw material used in the mother boards/ integrated circuits of almost every electronic item. The reason behind this usage is another miraculous quality of gold, that it offers least resistance to electric current. Gold has now become the most important raw material in the production of computer chips and no longer has value because of its ‘scarcity’ like rare stones, as explained by Imam Ghazali. Today; everyone who has a cell phone is a consumer/user of gold. There are approximately six billion cell phones working in the world today and as much lying in the drawers, which are not being used.


The fundamental mistake was to apply shariah laws of interest/usury/Riba of gold and silver money on fiat paper money, without giving a thought if it was fair and justifiable to do that. The ‘devaluation factor’ of fiat paper money was never considered, which makes both these types entirely different from each other.

This can be explained by an example: In Pakistan; if we put our money in the Saving Account, we get approx. 9% interest/profit while our money loses its value at the rate of around 16% due to inflation. So, even if we take the so called ‘haram’ interest, we still lose around 7% per Annum in terms of value of our money; and on top of that, we are bound to pay another 2.5% Zakat--when Allah only wanted the mandatory 2.5% out of savings -- kept intact for one year. Anyone can realize that this is huge confusion. Due to inflation, the paper money loses its purchasing power and in Pakistan, it loses more than half its value-- every five years. This confusion, even contributes to a negative impact over the minds of people about Islam-- a religion that is perfect, fair and simple. Young people find Islam as unpractical due to Shariah rules of Gold/Silver money applied on fiat paper money and the whole Islamic System looks unpractical.

This is the reason why people don't give Qarz-e-Hasana' (loan without interest) to anyone, as by the time the lender pays back, the money had already had lost half of its purchasing power. No philanthropist in Pakistan ever formed an institution which provides interest free loans to the needy, such as student/personal or business loans etc.

Since nobody ever noticed the fundamental mistake, therefore; more framework changes were made by the Islamic Scholars; to make Shariah Laws applicable to an existing banking system, based on this Fiat Paper Money. Naturally all such efforts could have only created more confusion. The Meezan Bank was the first Islamic Bank to open in Pakistan, with Mufti Taqi Uthmani as the Chairman of its Shari'a Board. This bank offered all the same loans and the same percentage of interest on savings, but the names were changed to Islamic (interest = profit). Allah knows better; but it seems like giving Islamic names to the old Schemes and an attempt to fool ones self. Amazingly; the foreign banks followed the same and introduced a parallel banking system called 'Shariah Compliant Banking'-- which off-course was nothing much, except to attract religious minded clients in the Muslim world.

Another argument in this regard is that Zakat is not applied on any thing that depreciates. Gold that is worn daily and houses that a person has given on rent to someone are exempted from Zakat on this very reason. Since paper money also loses its value, the same principal can apply on it as well. We were supposed to pay only 2.5% of money that did not devalue.

One of biggest problems with paper money is that it can be over printed irrespective of a growth in the economy, which causes inflation or devaluation of money. With gold and silver as currency, this practice could have been blocked. On one hand governmental corruption could have been checked and on the other, the blessing of Allah SWT could have been gained, by following the Sunnah currency.


Interestingly enough; there is evidence in Hadith (found in Bukhari and Muslim with a little difference) about Gold becoming more and more precious as we move closer to the end of times. It says that; Allah will make a mountain of gold to appear from the bed of River Euphrates and people will fight among each other over it, such that 99/100 people will die in the struggle. Muslims are advised not to go after it or take any gold from it, when that happens. The question is; why would anyone take part in such a bloody war unless; gold must be extremely precious and expensive at that time?


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