Each State adopts a specific unit of something, making it the basis to which goods and labour are related and by which they are measured. It coins the unit in a specific form and fashion which are specific to it along with a fixed weight and value. Societies have, from the earliest times, made this measuring unit from things with intrinsic value. They adopted gold and silver as a measure to which all goods and labour are related, because gold and silver have intrinsic value in the whole world. They coined currency pieces from them with a specific form and fashion as well as a specific and fixed weight and value.

The State which adopts gold or silver units as the basis for its currency follows the metallic system. If it makes the gold unit the basis for its currency which it coins as currency for itself, then it follows the gold principle or gold Standard. If it makes the silver unit the basis of its currency which it coins as its currency, then it follows the silver standard. If it makes the gold unit and silver unit-beside each other-as the basis for its currency which it coins as its currency, then it follows the gold and silver principle or the bimetallic standard.

As for the State which adopts paper currency as its currency such that goods and labour are exchanged with it, it follows the paper currency standard. If the paper it prints, as money and currency is representative of gold or silver, the State follows the representative paper currency standard. If the paper it prints and makes as its currency has gold or silver backing equal to a specific proportion of its value, it follows the paper currency standard of the secured type.

If the currency it prints, issues and makes as its money and currency is not a substitute for gold or silver, nor backed by gold or silver, the State is considered to be following the compulsory paper currency standard.

The Roman State adopted the fixed unit of gold with defined weight and value as the basis of its currency. It coined on this basis a unit piece of gold currency in a specific form and fashion, engraved with a specific inscription. It made this gold coined piece its money and currency, and submitted it for circulation, thereby adopting the gold principle in issuing its currency. It thus followed the golden ingots standard.

As for the Sassanid State, it adopted the silver unit as the basis of its currency. It made it of three weights, coining upon the basis of these weights silver Dirhams of specific form and fashion engraved with specific inscriptions. It made these silver coined pieces its money and currency, submitted them for circulation, thereby adopting the silver principle. It thus followed the silver ingots standard.

As for Muslims, they adopted the gold unit and silver unit as the basis for their money and currency. They utilised them together, except that they took Byzantine Dinars and Chosroes Dirhams as their money without coining their own specific money from the time of the Messenger (saw) and the Khulafa’a after him until the period of Abdul Malik bin Marwan. In his time, Abdul Malik bin Marwan minted specific Islamic currency, making it in specific form and fashion. He engraved it with a specific inscription and established it upon the gold and silver unit according to the weights of the Shari’ah Dinar and Dirham. The Muslims thereby proceeded on the gold and silver standard i.e. the bi-metallic principle. In the last days of the Abbassids, and the period of the Attabika in Egypt, Muslims coined, beside the gold and silver, copper currency to buy trivial things because copper’s intrinsic value is low. It was not representative of gold and silver; rather it stood on its own depending upon its value as copper. Since gold and silver became scarce in the Attabika period, they began buying all goods, whether expensive or cheap, with copper currency.

The world continued following the gold and silver principle based on the standard of ingots until the beginning of the 20th century. Each State would coin its own gold or silver currency in its own specific form and fashion, with specific fixed value or weight, until the major colonialist States abandoned the gold and silver principle just before World War I and adopted the compulsory paper money as their currency.

This is the reality of issuing currency, the reality of what Muslims followed in adopting and issuing currency and the reality of the Shari’ah rule regarding its issuing.

Therefore, Muslims must have gold and silver as their currency and the Khilafah State must make its currency of gold and silver. It must follow the gold and silver principle i.e. bi-metallic standard, as was the case in the days of the Messenger of Allah (saw) and the Khulafa’a after him. It must coin golden Dinars and silver Dirhams from the pure gold and silver material and with high value. It must make Dinars and Dirhams in a specific form and Islamic fashion unique to the Khilafah State, making the gold Dinar’s weight as that of the Shari’ah i.e. the Mithqal’s weight. Hence it should coin the Dinar as 4.25 grams for one Dinar which is the Dinar’s weight. It should make the silver Dirham’s weight the weight of the Shari’ah Dirham which is known as the weight of seven, i.e. 10 Dirhams weigh 7 Mithqals, and so it coins Dirhams as 2.975 grams for one Dirham.

It is possible for the State to coin gold Dinars, its parts and multiples in the following form:

Coins	Weight in Grams
1. One-quarter Dinar 2. One-half Dinar 3. Dinar 4. 5 Dinars 5. 10 Dinars 6. 20 Dinars	1.0625 g, the weight for which the thief ’s hand is cut. 2.125 g, the obligatory amount taken from the Nisab of Zakat. 4.25 g 21.25 g, a quarter of the Nisab of Zakat 42.5 g, half of the Nisab of Zakat 85 g, the Nisab of Zakat

Using this form, it can coin pieces in the weight of the Nisab of Zakat, the Dinar’s weight which is the basis of weight in gold, the weight of one-half Dinar which is the obligatory amount taken from the Nisab of Zakat, and a quarter-Dinar piece which is the amount for which the thief ’s hand is cut.

The State can also coin silver Dirhams, its parts and multiples in the following form: Coins Weight in Grams 1. One-half Dirham 1.4875 g 2. Dirham 2.975 g 3. 5 Dirhams 14.675 g, the obligatory amount taken from the Nisab of silver 4. 10 Dirhams 29.75 g 5. 20 Dirhams 59.5 g

Coins	Weight in Grams
1. One-half Dirham 2. Dirham 3. 5 Dirhams 4. 10 Dirhams 5. 20 Dirhams	1.4875 g 2.975 g 14.675 g, the obligatory amount taken from the Nisab of silver 29.75 g 59.5 g

 

The State can also coin units smaller than that of silver to help obtaining trivial things. Since the silver contained in these silver units is little and it is difficult to deal with them as they are pure coins, specific portions of different valueless metals can be added to them. However, the proportion of silver in weight used in these coined units must be clarified in a manner preventing any confusion over it.

The Khilafah State must endeavour to bring the world back to deal with gold and silver to prevent a state like America from dominating world currency such that she plays with it according to her specific interests.

The Standard Measure of Gold and Silver

The Islamic State throughout its years preserved the standard measure of gold and silver so that they remained free of any impurity. It ensured it was kept completely pure so that they were of high standard measure. It used to prevent adulteration of gold and silver, implementing punishment on all who adulterated Dinars and Dirhams.

Therefore, gold Dinars and silver Dirhams must be pure without mixing them with any other metal and its adulteration must be prevented. Punishment must befall all who mix it with any other metals as this is fraud and fraud is prohibited. The Messenger of Allah (saw) said: “He is not one of us who deceives” and in another narration: “He who deceives us is not one of us.”

The Ratio of Gold to Silver

The Khilafah State must leave the exchange ratio between gold and silver without any restriction. Gold should be exchanged with silver, and silver with gold at the current market price according to supply and demand as was the case at the time of the Messenger of Allah (saw) and the Khulafa’a after him. The Messenger of Allah (saw) did not determine a specific ratio between gold and silver nor obliged a specific exchange price between them. He left Muslims to buy silver with gold and gold with silver as they wished, hand to hand, without imposing a specific ratio between them. He said: “Trade gold with silver as you wish, hand to hand.” Ibn ‘Umar said: “I used to sell camels in Baqi’. I sold with Dinars and took Dirhams and I sold with Dirhams and took Dinars, taking this for that and giving this for that. I came to the Prophet (saw) when he was at Hafsa’s house and said: ‘O Messenger of Allah (saw), Will you please wait so that I ask you. I trade camels in Baqi’, I trade with Dinars and take Dirhams and I trade with Dirhams and take Dinars, taking this for that and giving this for that.’ The Messenger of Allah (saw) said: ‘There is nothing wrong if you take its price of the day as long as you do not depart from each other where something is still left between you.’”

This is not buying gold for gold and silver for silver, a trade in which equivalence is obliged. “like for like” and “hand to hand.” He said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt, like for like and hand to hand. Whoever increases or asks for increase has taken riba in which the taker and giver are the same (in sin)” narrated by Muslim.

The ratio between gold and silver changes and is not fixed, depending upon the abundance or scarcity of gold and silver metals and upon supply and demand. The ratio in the days of the Messenger (saw) was around 10:1, in the days of ‘Umar 12:1 then 14:1, and in 1971 it reached 45:1 then, a few months afterwards, 16:1. So the ratio between them is not fixed. Therefore restricting the exchange between gold and silver with a specific and fixed ratio is harmful because if the exchange price between gold and silver is fixed by a restricted statutory proportion, then it will be subject to difference between the statutory value and market value. If this difference occurs, within the State or in foreign markets, it will lead to hiding the currency whose price has risen and smuggling it overseas in case the external market value is higher than the internal statutory value.

The Benefits of the Gold and Silver Standard

When gold and silver were the currency circulating in the world, there were no currency problems at all. Currency problems did not arise except after the world abandoned the gold and silver system when the colonialist states invented colonialist economic and financial styles to consolidate their dominance over the world. They took currency as a means of colonisation and abandoned the gold and silver standard. They changed currency to other standards in which they gave consideration to bank deposits and compulsory currency that does not depend on gold and silver as currencies. They started to play with world currency according to their interests thus creating currency crises and economic problems. They increased the issuing of compulsory currency which created great inflation in currency, thus leading to decline in the purchasing power of currency. All this is due to abandoning the gold and silver standard.

The gold and silver is the only standard principle of eliminating this currency problems and the severe inflation which has spread throughout the world. It would create currency stability and steadiness in the currency exchange prices and advance of international trade. This is because the gold and silver standard bears numerous economic advantages such as:

1. The world production of gold and silver as commodities depends on the costs of exploration and mining, and the demand for them against the demand for other goods and services. This does not make the providing of currency to the world at the mercy of the colonialist states as is the case in the paper (currency) standard, a matter which enables states to place currency in the markets as they wish through the method of printing more (currency) whenever they wished to improve the currency and payments balance with other states.

2. The gold and silver does not expose the world to unexpected increase in the circulating currency as it happens with paper currency, thereby giving currency the attributes of steadiness and stability, and increasing confidence in it.

3. The gold and silver standard includes a measure for adjusting the imbalance in the payments between countries spontaneously without intervention by the central banks, as happens today whenever an imbalance occurs in the exchange price between world currencies. Increase of imports over exports in a State will increase the other State’s receipt of the state’s currencies and the outflow of gold and silver abroad. This will lead to a decrease in prices domestically, making domestic goods cheaper than the imported ones and resulting in decreasing imports ultimately. Furthermore, the state will fear the loss of its reserves of gold and silver if the imbalance of payments continued.Whereas, in the paper system, the State would resort the printing of paper currency whenever its payments balance is disturbed, for there is no restriction on such issuing, thereby leading to an increase in inflation and a reduction of the purchasing power of currency. As for the gold and silver standard, the State does not have the ability to increase the volume of currency paper as long as this currency paper can be transformed into gold and silver at a particular price. This is because the State fears that increase in it’s issuing can lead to increase in demand for gold such that it becomes unable to meet this demand, or gold flows abroad, thus the State loses its reserves.

4. Since gold is a currency unit that States can’t dominate, this gives it a great advantage in that any quantity of currency in the state is sufficient for what the market needs of currency exchange whether it is a little or a lot, since all goods are priced in exchange with it. So the production of other goods will increase and prices will decrease. Whereas, in the paper standard the increase in currency does not result in this. Rather it leads to reducing the purchasing power of currency, thus leading to inflation. This demonstrates that the gold and silver standard is the one that will put an end to inflation, whereas the paper standard makes it worse.

5. The gold and silver standard is characterised by the fact that the exchange price between different national currencies is fixed since each currency is valued by specific units of gold and silver. Hence the world will eventually have one currency in reality, of gold and silver, even though the currencies differ. The world will then enjoy free trade and movement of goods and wealth between different world States, eliminating the problems of hard currency and coins, thereby advancing international trade, as traders will not fear expanding into international trade as the exchange price is fixed.

6. The gold and silver standard will preserve for each country its gold and silver wealth. Thus the smuggling of gold and silver from one country to another will not arise. The State would not need to supervise the protection of its gold and silver as they will not move out except as prices for goods or wages paid to employees.

All these benefits are realised in a uni-metallic standard, whether gold or silver, or a bi-metallic standard of gold and silver. Moreover, the bi-metallic standard increases the size of the metallic principle which will result in greater total supply of currency, thus enabling the State to easily meet people’s need for currency. This generates greater flexibility and makes the purchasing power of the currency unit and the level of prices favourably disposed to an even greater degree of stability.

These are the merits and benefits of the gold and silver standard. It is not free of problems resulting from world monopoly, customs duty obstacles, concentration of the greater quantity of gold and silver in the treasuries of the super powers and the States which have high production capability and competition in international trade, intelligent scientists, experts and engineers, and because they adopt, at the same time, compulsory paper currency system instead of the gold and silver standard.

In order that the States adopting the gold and silver standard be able to overcome these obstacles and problems, particularly if the world super powers and the States with influence on international trade continued to follow other than the gold and silver principle, they must proceed along the policy of self-sufficiency. Thus they have to reduce their imports and work to exchange the goods they import with their own goods they have rather than with gold and silver. They must also endeavour to sell their goods for the goods they need, or with gold and silver, or the currency they require to import their goods and services.

Moreover, the country following the bi-metallic principle gold and silver should avoid fixing a constant exchange rate between the gold and silver units. They have rather to leave the exchange rate, proceed with the change of prices, because fixing a constant exchange rate between the two units will result in the disappearance from circulation of the currency unit whose market value exceeds its statutory value. This will leave only the cheaper currency unit, because the cheaper currency drives away the valuable currency from circulation.

The Sufficiency of Gold Present in the World

The gold standard is the correct standard preventing governments from issuing quantities of paper currency which has no reserves, thus leading to inflation. The gold system provides a fixed unit for international trade relations which encourage international trade. Is, however, the gold existing in the world sufficient to bring the world back to following the gold standard as in the past? Is it sufficient to provide the money required for trade dealings? Is there enough gold in the Khilafah State to enable it to return to the gold standard? In response to these questions, we say, Yes. The gold existing in the world is enough to return the world to the gold standard and it has sufficient flexibility to produce the money required to cover trade transactions and economic needs in the world, for the following reasons:

1. Throughout human history, no metal has ever enjoyed an interest similar to gold. All that man has mined of gold is being used until today despite having been mined thousands of years ago, since it does not perish leading to its disappearance. Rather, all that occurs is its exchange in the form of currency or jewellery, or using it into some form of manufacturing or re-melting it.

2. Gold in all previous times, up to the end of the 19th century, was sufficient for all trade activities and covering all world economic needs throughout all eras without the occurrence of economic or financial problems. Throughout the 19th century, in which economic growth increased to a great level, the world witnessed a great economic increase and a great reduction of prices and increase in wages without shortage in the quantity of gold currency displayed for use, despite the increased goods and services.

3. That which concerns people is not the real increase in currencies, but rather their purchasing ability. The purchasing ability of gold unit was great, creating steadiness and stability and causing prosperity and bloom. Whereas, the expansion in printing non-representative paper currency was a cause of huge economic and financial problems and the inflation increased resulting in decrease of the purchasing power of paper currency.

4. The economic system in which there are no restrictions like Tas’eer (fixing of prices) or monopoly does not concern itself with the quantity of currency existing in it, since any quantity of currency circulating is good enough to buy the goods and services in the market. Whenever the goods and services existing in the market increase while the quantity of circulating currency remains steady, this leads to making the currency unit capable of buying a greater quantity of goods and services. The opposite is also true i.e. if the quantity of goods and services decreases while the quantity of a currency remains steady, the currency unit’s purchasing ability ie. its ability to buy goods and services, decreases. Whatever the case, the circulating currency may be sufficient for currency exchange, no matter how much of it is in circulation.

5. What appears of visible shortage of gold is only due to the prevailing global inflation. If the world were to return to the gold standard then stability would return to currency prices, thus reducing the avid interest in gold, for gold would no longer be used in trading speculation. It would all be directed to trading transactions and economic needs, for the transactions of trading with gold and speculation with it will stop, as currency price stability will be achieved. This is because currency prices and their relation to each other will be determined by gold, thus making all currencies in the world virtually one currency which will lead to the inability of speculation with it and reduce the profits of trading with gold. This will lead to abundance in gold and its shortage will disappear.

These reasons in general demonstrate how the world can return to the gold standard, and how the gold existing in the world can fulfil currency need, cover the trading transactions and provide the required funds for economic needs.

As for the Khilafah State, whatever applies to other States also applies to it. So the above mentioned reasons demonstrate its ability to return to the gold standard. There are abundant quantities of gold present in the Islamic countries, accumulated in their banks and treasuries, completely sufficient to enable the Khilafah State to return to the gold standard. This is without even mentioning the quantities of silver in the Islamic countries, which will be a principal unit of currency in the Khilafah State’s together with the gold unit. This is because the Khilafah State currency is based upon the standard of gold and silver and upon the bi-metallic standard in relation to currency. All this will make it easy for the Khilafah State to return to the gold and silver standard.

Moreover, the Islamic countries possess abundant quantities of all raw materials necessary for the Ummah and the Khilafah state, thus making them in no need for other countries regarding the basic and essential goods. Thus the Khilafah State will be, through its reliance on domestic goods, in no need for importing foreign goods. This will hold back the moving of gold abroad and, instead, keep it in the country.

The Khilafah State also possesses important goods like oil which the whole world needs, enabling the Khilafah State to sell it for gold, goods which it needs or for currencies it requires to import goods and services. It can also prevent selling it to any country unless it gives its price in gold. Selling of such goods for gold will make the gold move into the country in abundance, thus increasing the reserves of gold in the Khilafah State.

The State’s self-sufficiency with domestic goods and its ownership of goods needed by all peoples who are ready to pay their price in gold, will hold back the transfer of gold abroad for a profitable return and increase the flow of gold into the country. This will enable it, to become influential, dominating world currency markets and preventing anyone from dominating its currency.

This demonstrates with absolute clarity the capability of the Khilafah State in returning to the gold and silver standard and illustrates that the gold existing in the Islamic countries is sufficient for achieving this and for providing the necessary currency.

How to Achieve the Return to the Gold Standard

The return to the gold standard requires the removal of the reasons that lead to abandoning it and the removal of the factors that lead to its decline. This requires the following:

1. Stopping the printing of paper currency.

2. Restoring the dealings with gold currency.

3. Removing custom duties in front of gold and all restrictions against its import and export.

4. Removing restrictions against owning, possessing, buying and selling of gold, and dealing with it in contracts.

5. Removing restrictions against the possession of the major world currencies and making competition free between them such that they take a fixed price in relation to each other and in relation to gold, without State intervention by reducing or floating their currencies.

Whenever gold is left free, it will have an open market in a short period, and accordingly all international currencies will take a steady exchange price in relation to gold. The international dealings with gold will develop where the payment of the prices of goods contracts estimated by gold, takes place.

If these steps are carried out by one strong State, then its success will encourage other countries to follow it, which will lead to advancing towards returning the world to the gold standard once again.

No State is more worthy to do this than the Khilafah State, since returning to the gold and silver standard in her view is a Shari’ah rule, and also because the Khilafah State is responsible for the world in terms of guidance and looking after the affairs.

By the help of Allah (swt) it was completed on Wednesday 19 Rajab 1402 AH 12 March 1982