DINAR,DIRHAM vs FIAT MONEY

The usage of fiat money as a medium of exchange in our daily transaction should be replaced by another thing or medium that would not oppress other people. The dinar and dirham does not have this characteristic because it is fair and just as it is using preferably gold. This special advantage will not make the government to exercise total control over it as is the case of paper money. 

If fiat money is a medium of exchange, the government can print as much currency as it wishes. In contrast, using dinar and dirham as a medium of exchange, the government will no longer be able to issue more gold than is available. In addition, the value of gold is stabilizing after a period of time. This is because its value will only change when a new gold mine is found but it will not be a severe change.

Next, there will no Riba al-Fadhuly (interest with extra commodity) as the government will no longer be able to fully influence by the circulation. However, because the gold coin may be debased, the chance of exploitation will still occur. Debasement in this context is it will have less gold coin in it than is stated on the coin. As we know, Allah swt declared war for those applying interest or riba in their transaction as stated in surah Al- Baqarah verse 279

And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged. (2;279)

On the other hand, gold and silver coins were preferred as they had value in themselves and were relatively stable. A person could be almost certain that he would be able to buy the same basket of goods with a gold coin even after a certain period of time, say two months. The gold standard was quite stable and was highly regarded throughout the world. It paved the way for international trade as people around the globe have a mutual desire for gold. Moreover, the traders could melt the gold coin and sell it for its gold content if the need ever arose.

In contrast, the introduction of paper money has led to the problem of instability of currency that did not exist with the usage of the gold standard. The production of gold was quite stable and it then automatically guaranteed stability.

Paper money also can be created anytime based on the decision of the government. This is what makes it so unstable unreliable as a medium of exchange. With an ounce of gold could buy the same amount of goods over an extended period of time whereas with a twenty dollar note may not be able to enjoy the same privilege.

Using money as a medium in the daily transaction,The government decides the money matters of a country and is also responsible for increasing or decreasing the value of its currency. For example, a country may require more money to finance all of its programs. On the other hand, the country might be spiraling into a depression which will result in reduced public spending.

THE QUESTION OF PAPER MONEY

     

    And among the People of the Scripture is he who, if you entrust him with a great amount [of wealth], he will return it to you. And among them is he who, if you entrust him with a [single] silver coin, he will not return it to you unless you are constantly standing over him [demanding it]. That is because they say, "There is no blame upon us concerning the unlearned." And they speak untruth about Allah while they know [it]. (3;75)

     Qadi Abu Bakr Ibn al-Arabi, the greatest authority on Qur'anic Law wrote in his famous "Ahkam al-Qur'an" about this ayat: "The benefit that can be taken from this is the prohibition of entrusting the People of the Book with goods".

     Qadi Abu Bakr said: "The question concerning entrusting property is legislated by the text of Qur'an." This means that the ayat is a legal judgement of absolute validity and of the greatest importance to the deen.