MONEY IN ISLAMIC ECONOMICS

Islamic banking finance economy

by islamicbankingfinanceeconomy.blogspot.com

MONEY IN ISLAMIC ECONOMICS

Before the introduction of money as a medium of exchange, trade in the global community using the barter system. As known, barter is done by way of exchange of goods or commodities among the parties to a transaction, but the transaction can be done if the A, for example, does require the goods offered the B, as well as the B. In short, in this barter economy, transactions can only occur if both sides have two needs at once, or according to Lipsey and Courant (1996) should happen a double coincidence of wants.In the history of Islamic economy, currency already known in the early caliphate. It can be seen when the caliphate of Umar and Uthman ra, the currency was printed with the style of Persian dirhams, with changes to the article listed in the currency. Although in the early days of the reign of Caliph Umar once arose the idea to print the currency of the skin, but finally canceled because it is not approved by the other companions. Currency Islamic caliphate that have special features newly minted during the reign of Ali although its circulation is limited.Currency with Persian style also at times Muawiah printed with images include the governor and sword. Governor of Iraq during the reign Muawiah, namely Ziad, also issued a coin with the name caliph. Inclusion of the picture and name of the head of government money, is still maintained, including the United States though.At the time of Abdul Malik (76 H) dinar-dirham exchange rate was relatively stable in the long term by-dirham exchange rate of the dinar 1:10. At that time the gold-silver ratio is 1: 7 so that the dinar is equivalent to 20 carat 14 carat ten dinars. Monetary reform was made by Abdul Malik, the dirham was changed to 15 carats, and at the same time reduced weight of the gold dinar from 4.55 to 4.25 grams. In an age of Ibn Faqih (289 H), the value of the dinar strengthened to 1:17, but then stabilized at the rate of 1:15. After the monetary reform Abdul Malik, then measures the value is as follows: 4.25 grams of the dinar, dirham 3.98 grams, one uqiyya 40 dirham, one mitsqal 22 karat, one ritl (liter) 12 90 mitsqal uqiyya equivalent, qist 8 ritl the equivalent of half a sa ', one qafiz 6 sa' equivalent artaba quarter, one wasqs 60 sa ', one jarib 4 qafiz.A few hundred years later, it is surprising indeed, the rates of 1:15 is also true in the United States in 1792-1834 M. In contrast to the steps taken by Abdul Malik with monetary reform, Americans still maintain this rate although in the European countries the value of gold coins exchange rate rose in the range of 1: 15.5 to 1: 16.6. As a result, gold coin and currency flow out of time to flow into the United States. This incident is said by Thomas Gresham as bad money drives out good money or money will replace the poor quality of good quality money. Minutes from the emergence of Gresham's law is as follows:In the 1519-1579 AD, Sir Thomas Gresham was one of the advisers in the court of Elizabeth. When Elizabeth I (1558-1603) ascended the throne, which in the mid-sixteenth century, there have been counterfeit coins as currency when applicable-counterfeit currency in the book of Islamic jurisprudence called maghsyusy. Looking at it, Queen Elizabeth took the initiative to create new coins made of gold which its face value is equal to its intrinsic value with a view to save the trade sector. But what happened? Not long after the new gold coins thrown into the community, the coins are missing, why?Rationally, of course, people will prefer to use the old currency (the old coin) as a means of payment rather than having to use the new gold coins. With two types of currencies of different materials but having the same power and functionality, better selling gold coins or even melt it into jewelry.The same incident, some three hundred years earlier (1263-1328), has been experienced by Islamic scholar Ibn Taymiyyah who lived in the reign of the Mamluks. At that time in the economy of the three types of currency in circulation: dinar (gold), dirham (silver), and money (copper). Very limited circulation dinar, dirham circulation fluctuates sometimes even disappear, while the wide circulation is money. This phenomenon is formulated by Ibn Taymiyya that money with low quality (money) will kick out good quality currency (the dinar, dirham). But in its development now, the theory of who is more famous and more recognized, Gresham's law or Ibn Taymiyyah's law? Though Ibn Taymiyyah was the first to formulate about bad money drives out good money.In Ihya Ulumuddin, Imam Al Ghazali likens money like a mirror. The mirror has no color but can reflect all colors. So even money. Money does not have a price but can reflect on all prices. Money is not a commodity and therefore can not be traded for a price. Ghazali also said that the trade in money is like imprisoning the functions of money. If a lot of money traded undoubtedly only a little bit of money that can serve as money. And when all the money has been used to trade in the money, there would be no more money functioning as money.In conventional economic system known as the three functions of money, namely:1. Medium of Exchange2. Units of Account3. Store of ValueWhile in the Islamic economy, only known to the two functions:1. Medium of Exchange (for transactions)2. Units of AccountIn Islam, it is clear that the first function of money only serves as a medium of exchange. Money becomes a medium for change of goods from one form into another form, so that the money can not be used as a commodity.The second function of money in Islam is a unit of account. Imam Ghazali said that in a barter economy even if the money is still needed. Had the money is not accepted as a medium of exchange, money is still needed as the unit of account, for example, to determine whether the three pieces of the cap is equal to 1 durian ?.The third function of money as a store of value. When conventional theories include one of the functions of money are as a store of value which includes also the motive of money demand for Speculation. It is not allowed in Islam. Islam allows money for transactions and as a precaution, but refused the money for speculation. This, according to Al Ghazali, is tantamount to imprisoning the functions of money.Then how Islam views the concept of utility money? As has been described above that in Islam, the money is only recognized as an intermediary form, is only recognized as a medium of exchange and unit of account, nothing more than this. That is the function of money simply as a medium of goods that one turns into the other stuff, no need for double coincidence needs. So in the Islamic concept, money is not included in our utility function, because the real benefit we get is not from money itself, but of the functions of money. In the hadiths of the Prophet Muhammad we can see a very central role of money in economic theory Islam. One example is when one day friend of Bilal bin Rabah want to swap 2 bags of dates that bad with 1 sack of dates is good, then the Prophet said, "There should not be, selling first dates were bad, and then buy palm good with proceeds" , According to the Prophet, each palm has respective price. Therefore it is very naive to say that the Islamic economic theory does not recognize the concept of money.