Currency of the Khilafah



The Khilafah’s currency is based on the gold and silver standards where the coins and notes in circulation are 100% backed by gold and silver. Islam did not leave any question unanswered, especially questions concerning the complexities of economic life. The Shari’ah has therefore defined the Islamic currency as gold dinars and silver dirhams along with their corresponding weights in gold or silver. The Shari’ah rules related to money such as zakat, blood money (diyah) and hoarding all specify values in gold and silver.[1]


Unlike the paper standard operating in the world today, the Bait ul-Mal (State Treasury) is not allowed to print any money unless it has the corresponding amounts of gold and silver in its reserves. This means the persistent inflation found in the world today would not exist in the Khilafah as the currency always keeps its value.


To illustrate this point when the UK operated the gold standard in the 19th and early 20th century, its price level in 1914 was the same as in 1816.[2] However, after abolishing the gold standard and operating a purely paper currency, the UK faced persistent inflation with a yearly increase in the price level. Over a fifty year period from 1948 to 1998 the price level was 19 times higher in 1998 than in 1948.[3]


Nowadays, it’s impractical to actually use gold and silver coins for transactions as happened historically, so paper banknotes and copper, nickel and zinc coins would be used for day to day purchases. However, these paper notes and metal coins must be 100% redeemable at any time in to their corresponding amounts of gold and silver, with a small administrative charge to cover the minting process.


The Khilafah operates a bi-metallic standard with gold and silver currency circulating within the economy at the same time. This means the Khilafah is in fact operating two separate currencies.


At the time of the Messenger (saw) and the Khulufa’a Rashideen the Muslims traded with gold and silver by weight. They did not mint a distinct currency for the state and instead used gold and silver in many forms. They used Byzantine Dinars and Persian Dirhams as well as gold dust, ingots and jewellery. The traders would weigh the gold and silver, and value it accordingly. This continued until the time of Khaleefah Abdul-Malik ibn Marwan in 77AH, when he began minting Islamic dinars and dirhams in their Shari’ah weights of gold and silver.


When the future Khilafah is established it will take some time before the old currency notes and coins in circulation e.g. Pakistani PKR’s or Indonesian IDR’s, can be completely abolished and replaced with minted dinars and dirhams. This is not a problem as long as the Khilafah from day one makes the PKR or IDR 100% backed by gold or silver.


A simplified example of how this would work is as follows. The Khilafah calculates the total value of its gold and silver reserves and then fixes their value to the total amount of PKR’s or IDR’s in circulation as best it can. Depending on its reserves it may decide to link the existing currency in circulation to silver and then issue a separate currency for gold or vice-versa.


The current market rate for silver is $18.12.[4] A silver dirham is 2.975g in weight. An Islamic dirham is therefore worth approx. $1.90, PKR 132.57 or IDR 17,511.70.


The current market rate for gold is $934.00.[5] A gold dinar is 4.25g in weight. An Islamic dinar is therefore worth approx. $140.02, PKR 9.762.19 or IDR 1.289,493.11.


Therefore silver is a better choice for small to medium transactions whereas gold is more suited for medium to high transactions, especially in the short term before the Khilafah mints a new currency that formally replaces PKR’s or IDR’s in circulation.


Since Allah (swt) has blessed the Muslim Ummah with an abundance of wealth and natural resources increasing the gold and silver reserves of the state is not a problem. The Khilafah will immediately price all sales of oil, gas and other resources in gold and silver and therefore break the link between these resources and the dollar. The international money markets would be forced to deal in gold dinars and silver dirhams since the west’s addiction to oil will continue for many years to come. Interestingly at the time of writing the oil price is $144.18 and a gold dinar is worth $140.02. A barrel of oil therefore equals roughly 1 dinar.


As regards the practicalities of minting notes and coins, what monetary units should be produced and designs etc., these are all styles and up to the Khaleefah to adopt as he deems best for the economy.


The gold dinar (4.25g) is the monetary unit of the Islamic State’s gold currency. The dinar can be sub-divided in to 1000 fulus. Historically fils (p. fulus) was the name given to copper coins. Today the name fils will mean gold coins that are divisions of a dinar.


The silver dinar (2.975.g) is the monetary unit of the Islamic State’s silver currency. The dirham was historically divided into 100 piastres in the Ottoman State. Piastres are therefore silver coins that are divisions of a dirham.


The following tables show examples of how gold dinars and silver dirhams can be minted by the Khilafah for use in everyday transactions. It also shows the current levels of the Zakat Nisab (limit over which zakat must be paid). The fils and piastre are small enough for purchasing everyday items such as bread and milk. The table uses four currencies for illustrative purposes: US dollars, UK Pounds, Pakistan Rupees (PKR) and Indonesian Rupiah (IDR).

Gold Dinars






Amount in

US Dollars

Amount in

UK Pounds

Amount in

Pakistan PKR

Amount in

Indonesian IDR

1 fils





PKR 9.76

IDR 1,289.49

5 fils





PKR 48.81

IDR 6,447.47

10 fils





PKR 97.62

IDR 12,894.93

20 fils





PKR 195.24

IDR 25,789.86

50 fils





PKR 488.11

IDR 64,474.66

100 fils





PKR 976.22

IDR 128,949.31

¼ dinar

(250 fils)




PKR 2,440.55

IDR 322,373.28

½ dinar

(500 fils)





PKR 4,881.10

IDR 644,746.56

1 dinar





PKR 9,762.19

IDR 1,289,493.11

2 dinar





PKR 19,524.39

IDR 2,578,986.23

5 dinar





PKR 48,810.97

IDR 6,447,465.57

10 dinar





PKR 97,621.94

IDR 12,894,931.14

20 dinar

(Zakat Nisab)




PKR 195,243.88

IDR 25,789,862.28



1ounce gold = $934.00

1g gold = $32.95


Source: NY Gold Market. 4th July 2008

Please note gold prices change on a daily basis.

An example of the dinar notes and coins is at the end of this article for illustrative purposes.


Silver Dirhams






Amount in

US Dollars

Amount in

UK Pounds

Amount in

Pakistan PKR

Amount in

Indonesian IDR

1 Piastre





PKR 1.33

IDR 175.12

5 Piastre





PKR 6.63

IDR 875.59

10 Piastre





PKR 13.26

IDR 1,751.17

20 Piastre





PKR 26.51

IDR 3,502.34

50 Piastre





PKR 66.29

IDR 8,755.85

1 dirham





PKR 132.57

IDR 17,511.70

5 dirham





PKR 662.87

IDR 87,558.52

10 dirham





PKR 1,325.74

IDR 175,117.03

20 dirham





PKR 2,651.47

IDR 350,234.06

50 dirham





PKR 6,628.68

IDR 875,585.15

100 dirham





PKR 13,257.35

IDR 1,751,170.31

200 dirham

(Zakat Nisab)




PKR 26,514.70

IDR 3,502,340.61


1oz silver = $18.12

1g silver = $0.64


Source: NY Silver Market. 4th July 2008

Please note silver prices change on a daily basis.

An example of the dirham notes and coins is at the end of this article for illustrative purposes.



[1] Abdul-Qadeem Zalloom, ‘Funds in the Khilafah State,’ translation of Al-Amwal fi Dowlat Al-Khilafah, Al-Khilafah Publications, 1988, p. 169


[2] Begg, Fischer, Dornbusch, ‘Economics,’ 8th Edition, Mcgraw Hill, 2005, p. 591


[3] Robert Twigger, ‘Inflation: the Value of the Pound 1750-1998,’ ECONOMIC POLICY AND STATISTICS SECTION, House of Commons Library,’ 1999


[4] NY Silver Market. 4th July 2008


[5] NY Gold Market. 4th July 2008