Money is a widely accepted and recognized medium of exchange that facilitates the buying, selling, and trading of goods and services. In essence, money represents a symbol of value that enables individuals and societies to conduct economic transactions efficiently.
Do you think that whenever you want to buy money is essential for all your needs and every desirable thing? See your surroundings and analyse this point without money nothing you buy. How important is it?
For example, You have a good dress, house, car and other luxuries of life without money, is it possible?
“If I say that money is like oxygen for the survival of happy and dreamy life”
However, the Islamic legal criterion for money is distinct from conventional notions. This article explains into
- The definition of money in Islam
- Highlights the differences between money and commodity
- Explores the various types of money as per Islamic principles.
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Defining Money In Islamic Finance
Money may be the whole thing which is used as a medium of exchange. Whether it is gold, silver, flower petals, skin, paper, etc. If it is generally accepted among the people.
(Al-Mausu’ah, Al-Fiqhiyah, Al-Kuwaitiyah)
Money refers to everything that is used as a medium of exchange and store of value. It does not matter what is the nature and form of that thing. (Turki,1988)
Shaykh Usmani says that money refers to something which has the following three attributes of money ;
- Medium of exchange
- Unit of account
- Store of value
According to Islamic principles, money must satisfy specific criteria to be considered legitimate.
The Islamic legal criterion for money–Characteristics
Money in Islamic finance is defined by its acceptance, portability, durability, divisibility, and stability of value. The Islamic legal criterion for money revolves around the following characteristics:
Accepted by Society: Money must be widely accepted within society for transactions and trade.
Portability: Money should be easy to carry and transport.
Durability: Money needs to withstand wear and tear over time.
Divisibility: Money should be divisible into smaller units to facilitate transactions of varying values.
Stability of Value: Money must retain its value over time and not be subject to excessive inflation or deflation.
Differentiating Money from Commodity
It’s important to clarify the differences between money and commodities because money is not equivalent to commodities according to Shariah Law.
The Concept of Commodity
In Islamic finance, commodities are physical goods or assets that hold intrinsic value and are used in trade or commerce. They include items such as gold, silver, wheat, barley, oil, etc.
While money and commodities share some characteristics, they are fundamentally different in Islamic finance:
- Money acts as a medium of exchange, while commodities are typically traded for money.
- Money holds legal tender status, meaning it is recognized and accepted by law for settling debts. Commodities, on the other hand, do not possess this attribute.
- Money serves as a store of value, maintaining its worth over time. Commodities, however, can be subject to price fluctuations and may not retain their value as reliably as money.
- Money is easily divisible into smaller units, allowing for flexibility in transactions. Commodities may not offer the same level of divisibility.
- Money acts as a medium of exchange, whilst commodities are commonly traded for money.
- Money holds legal tender status, while commodities do not.
- Money serves as a store of value, while commodities can be subject to price fluctuations.
- Gold and silver have traditionally been recognized as currency in Islamic finance.
- Paper currency, subject to meeting the Islamic legal criterion, is accepted as money.
- Digital currencies are being explored for their compliance with Islamic principles.
Types Of Money
The jurists and scholars have classified money into two types: natural money and customary money. Let’s explore these types in detail:
Natural money refers to objects or substances that possess intrinsic value by nature and are recognized as a medium of exchange within Islamic finance.
Examples of natural money recognized historically include gold and silver (dinar and dirham).
These precious metals are widely accepted as forms of money due to their inherent value, durability, and historical acceptance.
In Islamic finance, natural money holds significant importance as it aligns with the principles of intrinsic value and stability. Gold and silver have been recognized as a medium of exchange for centuries and are considered a reliable store of value.
Customary money, also known as conventionally accepted money, refers to forms of money that gain acceptance and recognition within a specific community or society through custom or tradition. This type of money is not inherently valuable like natural money but is accepted as a medium of exchange based on customary practices.
An example of customary money is modern fiat currency issued by the state, such as the US dollar, Euro, or any other national currency.
These currencies derive their value based on the trust and confidence placed in the issuing authority and the general acceptance within a specific jurisdiction.
Is paper currency considered legitimate money in Islamic finance?
Paper currency can be considered legitimate money in Islamic finance if it fulfils the essential criteria outlined in the Islamic legal criterion for money.
Are digital currencies permissible in Islamic finance?
The permissibility of digital currencies in Islamic finance is a subject of ongoing discussion and scholarly opinions. Compliance with the Islamic legal criterion for money is essential to determine its acceptability.
Understanding the Islamic legal criterion for money is crucial to grasp the unique perspective Islamic finance offers. Money, distinct from commodities, possesses specific characteristics and serves as a medium of exchange, a unit of account, and a store of value.
Gold, silver, paper currency, and digital currencies are all examined in light of Islamic principles to evaluate their compliance with the Islamic legal criterion for money. By adhering to these principles, Islamic finance aims to promote stability, fairness, and ethical conduct in financial transactions. Hope you have got all information about legal money from this article.