WITH the fixed exchange rate system that we have been following since 1998, comes our earnest hope for economic stability and steady growth after the 1997 downturn.
And so far, things have been going as expected and our economy is in good shape.
Companies continue to register profit and with it dividends for shareholders though not in a rate comparable to pre-1997 years.
That is why in her latest statement on the subject, the Governor of Bank Negara, once again dismissed speculation that the current peg would be reviewed.
There was no real need for such a move given the current scenario, she added.
One thing interesting is that it seems that we have learned a hard lesson that currencies are not ordinary goods or commodities but they are in fact prices for those things.
This defies the standard view held by many that currencies are no different from other commodities found in the market.
For those people, money and currencies can be bought and sold like goods, not only for cash but also for forward delivery in the futures market where people speculating in forex and financial futures markets have made billions.
In short, trading and speculating of currencies have become part and parcel of the economy.
In Islam, currency exchange/ trading is known as al-sarf which can be generally described as the sale or exchange of a price for price.
In line with this concept of treating money as price rather than goods, Islamic law always seeks to view money not as a commodity of trade that can be easily bought and sold without restrictions.
Islamic law thus provides for strict rules governing money exchange based on the golden principle that says money can only be exchanged on a cash basis and the rate must be at par if the exchange should involve similar currencies.
In his celebrated work Ihya Ulumiddin, Imam al-Ghazali, one of the greatest philosophers and jurists in Islamic history, made it very clear that those who utilised money for other than its original purpose, that is as a price, are corrupt and unjust.
The reason is in treating money as an ordinary commodity, individuals have committed an act of injustice or zulm by assigning a new role for money.
A prominent jurist of Hanbali school of Islamic law made it clear hundreds of year ago in his well-known work al-Turuq al-Hukmiyyah:
It is illegal for anyone to corrupt (ifsad) another person’s money or currency or to cause changes or fluctuation to its value or to treat money as a commodity of trade because if this rule is not followed, serious problems will befall the people in a scale only Allah Almighty will know its magnitude. What is required is that money should be treated as capital for business and not a commodity of trade, and when the government prohibits the use of a particular currency, such must be withdrawn from circulation.
It is not hard then to realise the wisdom behind such a stand when we consider the way modern forex players deal with currency trading and speculation.
If we look further at the discussion by al-Ghazali, we will find that he even predicted that people of our time would be talking about market instability as a result of instability in the exchange rate.
He cautioned that if people were to be allowed to treat money as an ordinary commodity, then the economic activity as a whole would be adversely affected by the ensuing instability in the currency rate of exchange.
That was why he said that Allah the Creator had chosen gold and silver to be the medium of exchange due to their relative stability.
According to Islamic thinking the manipulation of the value of money, that is the value of a currency in term of units of other currencies or of the same currency is similar to an act of a trader who alters his weighing scale or a person who commits an offence relating to weight and measurement.
Without a doubt such a person who is given a stern warning in the Quran, must be severely punished for he is cheating customers.
It must be remembered that Islam is not against currency exchange.
What it says is that such an exchange must be made with strict guidelines to ensure stability of prices in the market in view of the fact that any instability or turmoil in the value of currencies will definitely cause trouble in the marketplace for it will make it difficult for people to carry out transactions and economic activities. In other words, instability in the value of money will lead to people not having a proper value system for their goods and services and this is a very serious trouble, as cautioned by al-Ghazali and the likes.
The Prophet did not intervene in the exchange rate between gold dinar and silver dirham in Medina but left it to the market forces.
For some time the exchange rate between the two currencies was one dinar to 10 dirhams.
However, not long after, especially when the supply of silver received a boost from sources in Iraq after the opening of that country to Islam, the price of silver relative to gold had decreased to stabilise at the rate of 12 dirhams to a dinar by the end of Umar administration. (Umar was the second caliph.)
The same rate was applicable up to the time of Uthman ibn Affan the third caliph.
The fact is that the Prophet or the rightly guided caliphs after him were not pursuing the policy of a fixed exchange rate during their times.
The only thing done was to ensure that each piece of coin either the gold dinar or the silver dirham in circulation had a particular weight as this was very important for its value.
However, when the market loses its stability and there are strong signs that people have started to speculate with money, Islamic jurists have different prescription.
They have held that in normal circumstances prices in the market should find their own level, and as such governments have no right to pursue price control.
But when manipulation is rampant and market justice not followed, then the story is different.
The governments not only have the right to intervene but, according to some jurists, have an obligation to exercise price control.
Thus Islamically-fixed exchange rate can be justified on the grounds that price control can be exercised by the authority if there are genuine reasons for it to be imposed.
When a price or exchange control is established by the government based on sound considerations, then adherence to such a policy is part of the overall general duty of citizens.
