The digitalized barter trade system
The idea initiated in the Perdana Dialogue to introduce barter trading among Muslim countries is very much welcomed. The unprecedented back to basic step is no other than to eliminate trade risk from its source and lubricate the economic activities. However, the proposed barter trade system should observe shariah-compliant principles and the technological advancement of the digital world in the trade ledger settlement. This can be done by synthesizing the gold-backed digital currency into the system.
The introduction of digital currency is not new. We know that this is the area of consideration of many for example PTR Pedro (Venezuela-launched in 2017), Libra (introduced by Facebook Inc. in 2019), China’s Central Bank Digital Currency (CBDC began their research in 2014), Ubin (Monetary Authority of Singapore for Singapore Dollar started in 2017), emCredit (Dubai October 2017), PeruCoin, Canada (2016), Thailand (2019), Israel (2018), Germany (2018), e-Krona’s Sweeden Riksbank, e-Franc Switzerland (2018) and many more. The Bank of International Settlement (BIS) survey of 63 central banks focusing on the issue of digital currency. Relevant research on this aspect is encouraged to explore further viability and possibility.
Money is a social convention on determining the information of value, invented thousands of years ago to act as a currency replacing the flop of barter trade. Currency is money of any form be it fiat or commodity money recognized in an economic as a medium of exchange, stores of value and unit of measurement. Gold coins were first struck around 550 BC and acted as money for centuries prior to the introduction of gold-backed paper money in 1944 (the Bretton Woods system). By the late 19th century, many of the world’s major currencies were fixed to gold at a set price per ounce under the ‘Gold Standard’ and persisted about one hundred years. Beginning 1971, United States unilaterally terminated convertibility of the US dollar to gold and rendering the dollar a fiat currency follows by many fixed currencies such as pound sterling also became free-floating.
It is worth to note that, gold is known in numismatic to be the most precious metal recognized as money thereon currency. Allah has made the gold and silver desirable by a man signifies that the value of gold and silver will consistently valuable (Quran 3: 14 and 43: 71). Islam promotes productive activity by prohibiting of hoarding gold. For an individual or country to store gold in their reserve without make it circulated among people is condemned by the Quran (Quran 9:34). Therefore, with the observation of the real teaching of Islam, gold is the best-known productive currency to propagate economic activity.
Quoting the economic thought of Imam al-Ghazali in this aspect, he mentioned that “Creation of dirhams (silver coins) and dinars (gold coins) is one of the bounties of Almighty Allah. The entire world (of economic activities) is based on a transaction with these two kinds of money. They are two metals with no benefits in themselves. However, people need them in order to exchange them for different things, food, clothing, and other goods”. This is true for the case of gold-based digital currency.
Currency should have the qualities of being durable, divisible, acceptable, portability, uniformity and limited supply. With the emergence of recent digital development, the nature of ‘information’ about money also evolves accordingly. Fiat-based digital money is now widely used in monetary system via internet banking or electronic mobile transfer. The same digital representation can make possible for the gold to be represented, linked and backed for the gold in the vault. The value of the currency, therefore, is actually a gold-based digital platform tight to the price of the gold.
As a result, besides the basic existing qualities of money, the digital gold-backed currency provides the stability of price along with the advancement of digital technology extending a new feature of cross-border settlement, fast and low cost, tech efficiency, secure payment system, protected public utility and preservation of the seigniorage.
The gold-backed digital currency for trade settlement among countries possesses numerous advantages such as eliminating riba-based transaction with an instantaneous settlement (spot-settlement), interest risk, exchange rate, fluctuation of value, imbalance in any potential of the country risk.
The currency could potentially benefit 1.9 billion Muslim population which constitutes nearly 24.4 percent of the world population with a combined GDP of US$27,949 billion. Muslim countries cannot be dependent on the United Nations (UN) since the UN is unmanageable to cater to large mixed community country. That is why agendas on the development of Muslim left out unattended. In today’s economic environment, a self-governing and automated system such as blockchain technology and smart-contract for conduct (ādāb) execution is necessary.
Likewise, being the trade settlement, the wisdom behind the initiative of gold-based digital currency could also be exploited in charitable funding, Sukuk offerings and crowdfunding among Muslim countries that provide financial stability and economic growth. For the benefit of Ummah, this unilateral corporation need immediate attention.