The Positive Money proposals and the 100% reserve debates, which have almost a century of discussions and research behind them, have now gathered considerable momentum. A cursory perusal of the proposals shows that the features contemplated, with some modifications, may offer a solution for true Islamic banking that is not only free of ribā, but one that promotes the objectives of the Sharī‘ah. Further, the final design, after incorporation of the sharī‘ah rules, will satisfy the ribā provisions laid down by the earlier jurists. These provisions are stated in the section below. The section following it will incorporate these provisions into “ The Positive Money Proposal.”
The excellent proposal, mentioned above, was written by Andrew Jackson, Ben Dyson and Graham Hodgson, The Positive Money Proposal (2nd April 2013). This proposal as well as other proposals are found on positivemoney.org, along with many videos and other resources.
The Qur’ān gives the following warning about ribā: “If ye do it not [that is desist from charging ribā], take notice of war from Allah and His Messenger. But if ye repent, ye shall have your capital sums: Deal not unjustly, and ye shall not be dealt with unjustly.” [Qur’ān 2:279] I have worked on the problems of ribā, which is prohibited by the Qur’ān and the Sunnah of the Prophet (peace be upon him), for almost three decades now. In simple words, it is interest charged by banks or money-lenders. In this document, I will not call it “interest,” instead I will simply reproduce a few rules stated by the earlier Muslim jurists as derived from the Qur’ān and the Sunnah. I have come to understand these rules after having written three books on the subject. After examining the rules, it will be easy to define ribā.
To understand the rules, we will consider two transactions in currencies. In the first transaction, 100 units of currency “A” will be exchanged with 110 units of the same currency “A” with the 100 being paid at once and the 110 being paid in return after a delay of one year. A modern mind will call this a loan transaction at 10% per annum.
Rule 1: Islamic law does not permit this transaction, and issues two commands: (1) Make the two sides equal, that is, exchange 100 for 100. (2) Exchange the two counter-values at once, that is, make it a spot transaction. It is obvious that you will not undertake what is left of the transaction. [See the Tradition of the Six Commodities.]
In the second transaction, 100 units of currency “A” will be exchanged with 200 units of currency “B” with currency “A” being paid at once and currency “B” being paid in return after a delay of one year. A modern mind will call this a loan transaction at interest in different currencies, under the pretext of exchange.
Rule 2: Islamic law does not permit this transaction, and issues a single command: Exchange the two counter-values at once, that is, make it a spot transaction. It is obvious that you may or may not wish to undertake what is left of the transaction as it is now a simple currency exchange (at absurd rates). [See the Tradition of the Six Commodities.]
The two rules stated above are based on the Sunnah, which is a binding source for the Muslims, and you can see that prohibited ribā stands defined and explained. The two rules are sufficient to run our banking system. There is, however, a third rule concealed in the first transaction, which needs to be derived.
In the first transaction, when the first command, which requires making the two amounts equal, is implemented, an apparently harmless transaction remains. This is paying 100 units of currency “A” today and getting back 100 units of currency “A” after one year. A modern mind will say that this is an interest-free loan transaction. Yes, but Islamic law does not allow it, and issues the command “exchange at once.” We, therefore, have a third rule, which we may state as follows:
Rule 3: Loans are not allowed in Islamic law for commercial purposes, whether or not interest is charged on them. [The reason is that one person is using the other person’s money, without compensation, and this is not fair; hence it is prohibited.]
By “commercial purposes” we mean that if the loan is converted to a charitable loan, it will be allowed. This is done with four stipulations: (1) A period of repayment cannot be fixed. (2) No interest, benefit or gift, in lieu of the contract, is to be made part of this contract. (3) The donor may, if he so wishes, ask for the return of the amount the next day, but it is recommended that he do so when the borrower is enjoying financial ease. (4) The borrower of a charitable loan may use it for consumption or for business or for any other lawful purpose. This type of loan is a private loan or is part of a system of charities; it is not linked to the banking system.
The rules stated above contain a number of provisions that will generate a monetary and banking system that is likely to differ from the proposal made by the learned authors, but the objectives of the proposal and the Islamic version formulated here will be almost the same. The final decision, however, will be left to the Islamic law experts as well as bankers. The main features will be stated in points below. Where possible the relevant provisions of “The Positive Money Proposal” will be referred to:—
The above is the bare minimum that guarantees that the proposed system will be Islamic. There are, of course, many more details for which the reader is requested to turn to the sources mentioned in the next final section.
Muslim researchers, whatever their specialization, must realize that this is an opportunity for introducing true Islamic banking. They must devote time to it and make a contribution. The current Islamic banking is not “Islamic” in any sense of the term.
The resources for positive money proposals and about 100% reserve banking are available on the following sites:
See also videos like: World watches ahead of Swiss vote on “radical” sovereign money plan (https://www.youtube.com/watch?v=EnOn2mAfh-s)
In particular, see the video about the referendum held in Switzerland in June, 2018: Swiss Vollgeld-Initiative—Lessons Learnt after the Referendum on Sovereign Money (https://www.youtube.com/watch?v=6I_u1pn0BIM)
Books on ribā and money by Imran Nyazee:
See also Irving Fisher, 100% Money (New York: Adelphi Company, 1936).