Currency of the Khilafah

Abdul-Kareem

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 19^th and early 20^th 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

Monetary Unit	Weight (grams)	Amount in US Dollars	Amount in UK Pounds	Amount in Pakistan PKR	Amount in Indonesian IDR
1 fils	0.004g	$0.14	£0.07	PKR 9.76	IDR 1,289.49
5 fils	0.021g	$0.70	£0.36	PKR 48.81	IDR 6,447.47
10 fils	0.043g	$1.40	£0.71	PKR 97.62	IDR 12,894.93
20 fils	0.085g	$2.80	£1.42	PKR 195.24	IDR 25,789.86
50 fils	0.213g	$7.00	£3.55	PKR 488.11	IDR 64,474.66
100 fils	0.425g	$14.00	£7.11	PKR 976.22	IDR 128,949.31
¼ dinar (250 fils)	1.063g	$35.00	£17.77	PKR 2,440.55	IDR 322,373.28
½ dinar (500 fils)	2.125g	$70.01	£35.54	PKR 4,881.10	IDR 644,746.56
1 dinar	4.25g	$140.02	£71.07	PKR 9,762.19	IDR 1,289,493.11
2 dinar	8.5g	$280.04	£142.15	PKR 19,524.39	IDR 2,578,986.23
5 dinar	17g	$700.10	£355.36	PKR 48,810.97	IDR 6,447,465.57
10 dinar	42.5g	$1,400.20	£710.73	PKR 97,621.94	IDR 12,894,931.14
20 dinar *(Zakat Nisab)*	85g	$2,800.40	£1,421.45	PKR 195,243.88	IDR 25,789,862.28

1ounce gold = $934.00

1g gold = $32.95

Source: NY Gold Market. www.kitco.com 4^th 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

Monetary Unit	Weight (grams)	Amount in US Dollars	Amount in UK Pounds	Amount in Pakistan PKR	Amount in Indonesian IDR
1 Piastre	0.03g	$0.02	£0.01	PKR 1.33	IDR 175.12
5 Piastre	0.149g	$0.10	£0.05	PKR 6.63	IDR 875.59
10 Piastre	0.298g	$0.19	£0.10	PKR 13.26	IDR 1,751.17
20 Piastre	0.595g	$0.38	£0.19	PKR 26.51	IDR 3,502.34
50 Piastre	1.488g	$0.95	£0.48	PKR 66.29	IDR 8,755.85
1 dirham	2.975g	$1.90	£0.97	PKR 132.57	IDR 17,511.70
5 dirham	14.875g	$9.51	£4.83	PKR 662.87	IDR 87,558.52
10 dirham	29.75g	$19.02	£9.65	PKR 1,325.74	IDR 175,117.03
20 dirham	59.5g	$38.03	£19.30	PKR 2,651.47	IDR 350,234.06
50 dirham	148.75g	$95.08	£48.26	PKR 6,628.68	IDR 875,585.15
100 dirham	297.50g	$190.15	£96.52	PKR 13,257.35	IDR 1,751,170.31
200 dirham *(Zakat Nisab)*	595g	$380.30	£193.04	PKR 26,514.70	IDR 3,502,340.61

1oz silver = $18.12

1g silver = $0.64

Source: NY Silver Market. www.kitco.com 4^th 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,' 8^th 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. www.kitco.com 4^th July 2008

[5] NY Gold Market. www.kitco.com 4^th July 2008

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Abdul-Kareem said:

RE: Ordinary Muslim

Also i am worried about the security of the gold /silver bank , it could be open to subversion as the germans tried to do that to british bank in the wars.

All major states in the world hold their gold reserves in the central bank safely and securely without any problems. This will be the same in the future Khilafah as it was during the previous Khilafah inshAllah.

Also i assume there will be a gradual changeover of currency say 1 year, oterwise how can the paper money be made useless overnight ?

It depends on what gold and silver reserves are available but one scenario is that the existing paper money will be fixed to an amount of gold and silver from day 1. People will continue to use the currency but from a state point of view it is now running a gold and silver standard. It cannot simply print more money unless it has the corresponding gold or silver reserves.

The above article states:

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.

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August 29, 2010
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ordinary muslim said:

	Maybe we could use famous muslims inventions such as the number zero on the notes
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August 29, 2010
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ordinary muslim said:

why not have competition to design the currency notes, children could also enter, it would be a great dawah media.
I agree the kalima should not be on the notes.
Also i am worried about the security of the gold /silver bank , it could be open to subversion as the germans tried to do that to british bank in the wars.
Also i assume there will be a gradual changeover of currency say 1 year, oterwise how can the paper money be made useless overnight ?

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August 29, 2010
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Abdul-Kareem said:

RE: Muhammad

wa salam,

The weakness in any system is human beings who are prone to corruption. However, with a gold and silver standard the government is restricted in its control of the money supply and cannot simply print more money as happens with the fiat standard. There is far less propensity for corruption with a gold and silver standard. Western governments openly admit they print more money which they call "quantitative easing". The west can generally get away with this because of the confidence in their economies. However, when other third world countries implement the fiat standard and print more money they can get hyper-inflation as is seen in Zimbabwe.

The government in the Khilafah will be ruled by people with taqwa who are accountable firstly to the creator Allah (swt), and they are restricted in their actions by the shariah. In the west the governments have no concept of taqwa and they are restricted only by the law they make from their own minds, that suits the capitalist interests (large corporations and banks).

Conterfeiting of gold and silver is not a problem because the state will not be issuing gold and silver coins for use in day to day transactions. Rather the gold and silver will be stored in the Khilafah's treasury vaults and paper money issued in direct proportion to the reserves. As with the gold and silver reserves that all countries hold they will be checked for authenticity (a very simply process nowadays).

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August 22, 2010
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Muhammed said:

Salam Alaykum wa rahmatu Allah wa Barakatu brothers and sisters. historical and economical research has show that a monetary system backed by precious metals (like gold and silver) are prone to corruption, by means of changes in quantity ( often by the rich leading to plutocracy). Also it is relatively easy to counterfeit gold and silver. The islamic government should issue currency backed by nothing, because potential problems lie not in what backs the money, but rather who controls its QUANTITY. i advice you my brothers and sisters to watch the documentaries Money Masters and The secret of Oz on youtube. these two films explain excatly what the problem with fiat, and gold-backed currency is. Salam Alaykum

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August 21, 2010
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Abdul-Kareem said:

	RE: mohd A paper based currency (fiat currency) is where the paper is not backed up by anything of value. The Khilafah's currency on the other hand is gold and silver. The paper notes issued in society are 100% backed by gold and silver. At any time people can transfer their paper notes for gold and silver if they wish.
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August 23, 2009
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mohd said:

	why are you still dealing with the paper money financial system?
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August 23, 2009
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Abdullah said:

I hope that the currencies posted in here will not be the currencies printed during the Khilafah Insh'Allah. All these pictures have the kalima on them and no kalima or name of Allah or Muhammad or the pictures of Qur'an shud be printed on currencies. It will be a sin and disrespect to the Holy name and the Holy Kalima if it falls on the ground or tossed around. I hope it will be printed in simply as 10 dirhams for example.

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November 13, 2008
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Abdul-Kareem said:

	RE: Abdullah This requires an Islamic scholar to answer this. Personally I calculate my zakat against the silver nisab not gold. Its better to be safe than sorry. The punishment for not paying zakat is huge.
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August 24, 2008
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Abdullah said:

	You wrote that the Zakat nisab is either $2,800 (if you use gold standard) or $380 (if you use silver standard). What do Muslims do today in order to pay the Zakat. A brother told me to use the gold standard, can you confirm?
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August 24, 2008
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IbnDarwish said:

On the paper form of currency, it would be much better if the state's flag (the White Flag) - which on the bottom right - was cornered up on the right instead. The flag of the state is an honor and we should always keep it up higher. Furthermore, I think the back round color of the paper-currency should be darker than white. Black back round with white outlines to contrast the details of the currency for example would look much better. Black back round of the paper currency would be more suitable for than the white color because white color is more vulnerable to getting dirty. And so, Black back round of the paper currency may hide the dirt better. These are personal opinions - nothing more - and only Allah (swt) knows best and He (swt) alone guides the way.

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August 11, 2008
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