GUIDELINES
ON THE USE OF
THE ISLAMIC GOLD DINAR

Summary
The establishment of the Islamic Dinar as a medium of exchange within the context of an Islamic Trading bloc is feasible if:

1. We do not submit its implementation to political consensus

2. We commit ourselves to a practical and functional programme directed towards enhancing trading through a core monetary mechanism

3. We have the support of one Muslim country such Malaysia

Our Proposal
Make the programme start now. We need a Core Monetary Mechanism, adding functionality step by step.

The Core Monetary Mechanism consists of:
Physical Dinars and Dirhams, with an E-payment system backed by gold, called e-dinar (operational) Physical Islamic marketplaces, with electronic e-markets using the e-dinar payment system, Qirad contracts for trade investment, with an e-qirad online auditing service putting investors in touch with traders.

Key Considerations

1. The establishment of the Shariah currency, the Dinar and the Dirham, is the most important political issue the Ummah is faced with today. It supersedes any other political issue.

2. The Islamic Dinar and Dirham, because they benefit every Muslim, are the foremost platform of political unity for the Muslims of today. Their use will lead to the immediate formation of a Muslim Trading Bloc based on a universal Islamic currency.

3. The Islamic Dinar and Dirham make possible the aspiration of creating an ‘Islamic Nation’ in a way no other economic or political instrument or method can achieve.

. The Dinar and the Dirham should be separated for the time being from the political process. The political institutions are not capable of reaching an agreement under the present circumstances.

5. On the other hand, the currency and trading cannot be separated. The establishment of the Islamic Dinar has to be simultaneously followed by the re-establishment of Islamic Trading. Islamic Trading represents a new paradigm that challenges and replaces the values, institutions, instruments and models of present-day economic orthodoxy.

How to do it
We propose a low-cost, low-risk approach by gradually introducing a gold-based currency for trading in parallel with existing paper currencies.

The next question that needs to be addressed is how to enhance the monetary use of gold and silver. Most importantly, we need to provide an electronic payment system that will facilitate the transfer of and trading with Islamic Dinars. E-dinar represents the first electronic payment system based on the Islamic Dinar. It is 100% backed by physical gold and offers the convenience of Internet transactions. Its ease of use, cheapness and transaction speed make it superior to all forms of modern banking.

The monetary use of the Islamic Dinar is best enhanced by first introducing it for core Islamic purposes, in particular for the payment of Zakat and Mahar. In parallel, it must be integrated with existing e-marketplaces and new qirad-based investment instruments to expand its use in trading, thus reversing today’s money-flows away from money itself and towards trading. The planned integration of e-dinar with an existing e-marketplace and a newly developed e-qirad system will greatly facilitate the return of Muslims’ investments to Islamic economies.

To facilitate the introduction and circulation of the Islamic Dinar and its use in trading, one country needs to establish the Islamic Gold Dinar as legal tender. This will expand its global reach and will open the possibility of establishing gold contracts denominated in Islamic Dinars.

The practical building-blocks that need to be put in place comprise the minting and distribution of the gold and silver coins, the expansion of the e-dinar payment system and its integration into existing e-markets, and the development of a new e-qirad system to finance trading and attract trade investments. The physical implementation of open markets, caravans and guilds for a renewal of the production process will follow.

Bottom line:
The constituency of users of the Islamic Dinar will become the de facto Islamic Trading Bloc.

A Monetary Union or a Monetary Service?

How can we universalise the use of the Islamic Dinar? How should we involve other Muslim countries? Should we follow the political path of a Monetary Union such as the Euro or should we build-up a monetary service with expanding functionalities in parallel with existing currencies?

We believe that the political process of a monetary union, that is, the process of converging the present paper currencies of different Muslim countries into a single currency is, if at all possible, lengthy and troublesome. Furthermore, when considering the political and economic disparities between different Muslim countries, it seems highly unlikely that they could be united in this way.

On the other hand, because of the intrinsic value of the Gold Dinars and Silver Dirhams, it is perfectly feasible that the practical validation of their use as a medium of exchange will supersede their validation by institutions.

Gold as a Commodity
Gold and silver, unlike all paper currencies, do not depend on a third party’s promise to pay. They have a value of their own as commodities and, like all other commodities, they contain an intrinsic value prior to their value as a currency. It is therefore important to understand that a gold coin is always valuable even if it has only a small number of monetary users.

The creation of a unifying paper currency, even if all Muslim nations were to participate in its creation, poses a difficult, if not impossible task. The reason for this is that in order to become operational, such a theoretical paper currency would have to be able from day one to compete successfully against the US Dollar. Only the Islamic Gold Dinar has the ability to compete successfully against the US Dollar, irrespective of the initial number of users.

In addition, the economic disparities between Muslim countries are so large that the necessary process of integration would weaken the stronger currencies without strengthening the weaker ones. An interesting example in this context is the failure of the Euro to integrate the British Pound and other European currencies such as the Swedish Krona, not to mention the enormous costs associated with this monetary union, in terms of both the devaluation of national currencies by more than 20% and the actual costs of implementation, which are believed to exceed 100 billion Euros.

The political process of establishing a new Muslim currency would pose an immense burden on Muslim nations – a burden many of them might not be able to carry. On the other hand, to bank upon the practical acceptance of gold and silver coins based on their usage by the people is an honest, safe and low-cost, low-risk approach to start uniting the Muslim nations in an organic and evolutionary way through the establishment of a universal Islamic currency in parallel with existing means of payments.

We thus believe that the best model to enact the return of the Islamic Dinar is to build up expandable monetary services parallel to existing currency systems. Such monetary services would have to be freely available to all people who are looking for an alternative to the all-pervasive paper-based monetary systems.

An Expandable Monetary Service

The Payment System: e-dinar.com
How to enhance the monetary use of gold and silver? The most important enhancement is to provide an electronic payment system that will facilitate the transfer of and trading with Islamic Dinars.

E-dinar is the first electronic payment system based on the Islamic Dinar. It is 100% backed by physical gold which is stored in a central global bullion repository currently located in Dubai (UAE). Transactions between account holders are settled instantly through the intermediation of a virtual wakil or agent (executed by the database) which administers and operates the accounts on behalf of the account holders who issue instructions via the Internet. The e-dinar system allows all account holders to make instant payments globally at a fraction of the cost of comparable services provided by banks today, using the convenience and speed of Internet transactions.

The essential functions of the e-dinar system comprise an in-exchange function where account holders convert paper currency into e-dinars, a spend function where account holders transfer e-dinars directly between e-dinar accounts, and an out-exchange or redeem function where account holders convert e-dinars either into paper currency (out-exchange) or into physical gold dinars (redemption). At present the e-dinar system only supports gold dinars, but silver dirhams could be added easily.

Since all transactions are immediate and occur directly between individual account holders, settlement is automatic thus eliminating the possibility of fraud and the need for third party mediation as is the case in banking.

The simplicity of the e-dinar system coupled with the key advantages described above make it superior to all forms of modern banking, thus establishing the basis for gold and silver to become a universal currency. The e-dinar system is operational today and can be used as is.

E-dinar functionality can be further enhanced by making the use of the system more convenient. New improvements could for example include mobile telephone access for account holders through m-commerce payment facilities, the integration of the e-dinar system with other on-line payment systems (already available for e-gold), and the addition of ‘smart card’ technology to substantially increase the convenience of the in-exchange and out-exchange functions. The addition of ‘smart card’ technology in particular will greatly increase customer convenience by enabling instant switching between paper currencies and e-dinars thus eliminating costly bank transactions and the long time delays associated with international money transfers.

Further enhancements of the e-dinar system will for the most part focus on increased customer convenience and include the expansion of our existing e-kiosk network to every Muslim member country to facilitate in-and out-exchanges, that is, the reciprocal conversion of e-dinar from and to national paper currencies. It is conceivable that Central Banks could operate as intermediaries in this process by establishing the daily exchange rate of their national paper currencies against e-dinar.

Key advantages of the e-kiosk network include:

These improvements will guarantee the acceptance of local currencies into the e-dinar system at the lowest possible cost for account holders. Such arrangements are immediately possible through the establishment of special e-dinar accounts or ‘reserve accounts’ for central banks and other major players in today’s money economy. With growing demand, local repositories will be established in Malaysia and other participating Muslim countries.

There are other major improvements in the monetary services that do not only relate to the e-dinar payment system but to the actual use and legal status of the Islamic Dinar.

Improving the Monetary Functions of the Islamic Gold Dinar

The First Pillar: The Payment of Zakat
According to Islamic law, the payment of Zakat must be made in ‘ayn and not in dayn, that is to say, it is allowed in tangible merchandise but not in the form of a debt or a promissory note. It is for this reason that, until the end of the Khalifate, Zakat was not allowed to be collected in paper money.

The return to the Shariah currency for the payment of Zakat must be given a top priority in the implementation of the Islamic Dinar as a Muslim currency, since the establishment of the correct means of payment of Zakat can potentially trigger the full development of the currency. If the payment is correctly done in gold and silver coins, the coins will find their way through the shops and their suppliers into the economy. This penetration among professional traders will be further enhanced through the facilities provided by the e-dinar system.

It is most reasonable to assume that an Islamic currency is first of all used to fulfil the main imperatives of Islamic Law. This makes the payment of Zakat the first and most fundamental issue to be addressed.

Following an example from the UAE to illustrate the impact of paying Zakat in gold and silver:

The Second Pillar: A global finance system based on gold
How can gold and silver coins outside the banking system contribute to the growth of the economy? How can gold be used for investments and for what kind of investments?

Today, gold is mostly used in the form of jewellery as a protection against inflation. This gold is "hidden under the mattress" and therefore does not contribute to the economy. Gold coins, while providing a protection against inflation, also represent a means of payment and investment which, when freely circulated, have a direct impact on the economy.

Investments, in the same way as currencies, must be in harmony with the Shariah. The main form of investment that existed in the past alongside the Dinar and Dirham was Qirad. Qirad or mudharaba has unfortunately been completely distorted in recent years because of the need to justify Islamic Banking. In the past, Qirad was the most important form of investment dedicated to trading. The fact that trading has ceased to be what it was does not mean that qirad is outdated; it simply means that the return to qirad will imply the return to a true form of free trading.

The importance of Qirad
The importance of Qirad cannot be overestimated. It was Ferdinand Braudel, the French historian, who was the first European to recognise that the arrival of Qirad on the Italian shores, under the name commenda, was the main reason for the trading boom in the Italian City States that gave birth to the Renaissance. Qirad channels the savings of the community to the most profitable venture of all: trading.

Rasulullah, salallahu alayhi wa sallam, said:
"9/10ths of provision comes from trading."
This is like saying: 9/10ths of the profit comes from trading. Enhancing trading is the key to the recovery of our society. And the condition for this recovery is the reintroduction of Qirad investment in trading.

Qirad strengthens Trading, and Trading strengthens Qirad
Qirad investments must be made in dinars and dirhams. Qirad must be strictly regulated by the Shariah, which means first and foremost that Qirad is designed to finance trading; and second, that the agent in Qirad does not offer a collateral to the investor. Based on these two principles, two further principles follow:

First, the funding of trading allows trading to reach its maximum potential.

Second, unlike in banking where "money goes to money" (the collateral principal), in Qirad money is channelled to those with the ability to perform best. It is interesting to note that in today’s distorted money economy, more than 95% of all funds are invested into monetary instruments and less than 5% into trading. This equation needs to be reversed.

Qirad, the investment without collateral
Without collateral, the mechanism for assessing the worth of an agent is based on the evaluation of his honesty, integrity and capabilities. In the past, such evaluations were based on the reputation and performance of agents. Today the assessment of agents could be handled more effectively by electronically recording the past performance of traders in Qirad contracts. For example: in a first Qirad a trader may make a profit of 12%, in a second Qirad 30%, in a third Qirad 5%, and so on. Such performance histories allow the ranking of traders by providing investors with a classification system as used in the star-based ranking of hotels, i.e. 1 star, 2 star, 3 stars traders, etc.

Giving value to honesty and performance
Provided that independent auditors assess a trader’s performance, every recorded Qirad transaction will help to make the overall Qirad system more reliable. If such evaluations are digitally recorded and communicated, the establishment of an internet-based facility can facilitate e-qirad investments tremendously, comparable to the quotation and rating of listed companies in today’s markets: e-qirad.com (ready for development).

E-qirad uses e-dinar as a means of payment to facilitate the re-creation of true Islamic Investments.

Today, so-called Islamic investments amount to approximately 86 billion USD. Such investments are mostly denominated in US dollars and invested in American and European Stock Exchanges. These so-called Islamic investments are lost to Muslim economies. E-qirad will return them to our traders, our best and most undervalued assets.

The Third Pillar: Legal Tender
Many countries including Malaysia use gold coins as legal tender in parallel to their paper currencies. The establishment of the Islamic Gold Dinar (IGD) as legal tender in one Muslim country is a necessary condition for expanding its global reach. It is sufficient that one country accepts IGDs as legal tender for it to gain legal status everywhere thus extending its recognition and acceptance internationally.

Making the IGD legal tender in Malaysia has direct implications for its use as a medium of exchange. It opens the possibility of establishing "gold contracts" denominated in Dinars and legally enforceable in Dinars. On a global scale, the status of legal tender will do away with certain legal and tax issues that otherwise classify the Dinars and Dirhams not as money but as jewellery and medallions, and taxes them accordingly.

The Islamic Gold Dinar is the Heart of Islamic Trading
The Islamic Gold Dinar forms an integral part of Islamic Trading. The return to a gold-denominated currency will promote and enhance the return to our own Islamic model of trading. Islamic trading is more than what is commonly called trading – it represents free competition rather than today’s prevalent market monopolisation.

Islamic Law defines and protects trading. What WTO calls trading and what the Islamic Law refers to as trading are two different things. While WTO understands trading as monopolistic distribution, Islamic trading is something completely different. The key element to free trading is the open marketplace. In our modern capitalist environment, the institution of open markets has been abolished in favour of shops and supermarkets. However, without open markets, trading is reduced to monopolised distribution.

The most compelling evidence of the elimination of trading is the abolition of caravans. Caravans cannot exist without open markets.

The Islamic Model of trading is based on the prohibition as expressed in the Qur'an:
"ALLAH HAS PERMITTED TRADE AND FORBIDDEN USURY"
(Qur'an 2, 275)

"OH YOU WHO BELIEVE! TAKE SHELTER IN ALLAH AND ABANDON WHAT REMAINED (DUE TO YOU) OF USURY IF YOU ARE (INDEED) BELIEVERS.
BUT IF YOU DO IT NOT, THEN TAKE NOTICE OF WAR FROM ALLAH AND HIS MESSENGER."
(Qur'an 2, 278-279)

In our opinion, a ‘pro-trading’ strategy is more productive than an ‘anti-usury’ strategy. To re-create true Islamic trading, we propose the following step-by-step approach:
1. Issue and circulate Gold and Silver both virtually and physically.
2. Re-create Open Markets and regulate them by Islamic Law both virtually and physically.
3. Restore Islamic contracts both virtually and physically.
4. Restore caravans and trading routes.
5. Restore guilds for the re-establishment of open production.

The promotion of trading is our best defence against usury, in the same way that the promotion of health is the best defence against sickness. To re-create a complete Islamic model, an anti-usury strategy is insufficient. We must adopt a pro-trading strategy that does not depend on banks and thus eliminates the need to ‘islamize’ them – a futile effort in the first place.

Open Markets
The Messenger of Allah, salallahu alayhi wa sallam, when he went to Madinah established the mosque and the market and regulated the market like the mosque: it was open to everybody and could not be owned by anyone (see Appendix 1). Unlike Carrefour, today’s biggest supermarket chain, the Islamic Market was open for everybody to trade in, everybody had the right to buy and sell. Trading was not the privilege of a few, just as we would not tolerate that only a few would have the exclusive right to pray in the mosque performing the payers for all others through their mediation. In the same way, Muslims have never tolerated trading to be in the hands of a few.

In the past, open markets existed in every city, but gradually turned into clusters of shops that over time became supermarkets. In the modern age of supermarkets, the 5 biggest supermarkets in the UK control 60% of retailing. In Switzerland, the two biggest supermarkets control 80% of retailing. The buying and selling in supermarkets relegated trading to distribution while at the same time monopolising both the distribution and the production processes.

Islamic Trading and open markets unleash the potential of society and represent fundamental values without going back to the ‘primitive’. Ibn Khaldun was keenly aware of the phenomenon of monopolisation and understood that a period of prosperity is always followed by a period of decadence. He stated that if you want to know in which time you are living, go to marketplace. If the market is owed by a few, then it is a time of decadence, if the market is open to everybody, then it is a time of prosperity.

The Muslims built markets in every city. The importance given to trading was reflected in the size and beauty of these markets. Some of these markets were like palaces with traders being treated as honoured guests hosted for free during the first three days of their stay. This importance given to trading was based on the knowledge that wealth comes from trading. Although Allah has said: "Allah has permitted trade and forbidden usury", our modern economic pragmatism has led us to put the bankers in palaces and throw the traders out into the streets.

Based on the model of the only large open market in regular operation today, the ‘Black Market’ located outside of Amsterdam and owned and operated by Bart van Kampen, we developed the concept of the ‘25 Open Markets of Europe’. The open market in Amsterdam has at present approximately 3,500 stalls and 10,000 individual parking spaces, and attracts over 80,000 visitors each weekend. Traders come from as far away as eastern Poland and Russia. Although difficult to assess, this market is estimated to generate approximately USD 100 million in revenue per year thus averaging a higher turnover per square metre on weekends than any comparable supermarket generates in a full year of operation. Traders from Russia, for example, drive on average 2.5 days each way to bring their merchandise to the market and generate in one weekend more income than they could possibly generate during three months of work in Russia.

Islamic Trading
Today trading has been abolished and usury has been permitted. Trading is completely misunderstood and not given its due economic value.

To bring trading back to its former glory it is not only necessary to create a true and fair currency, it also requires the rebuilding of open markets and Qirad investments to finance trading. With open markets and Qirad investments in place, caravans and guilds will come back to life.

Gold, markets, Qirad investments, caravans and guilds sound like relics from the past. They are however not relics from the past but belong to the eternal reality of trading. And free trading is the only true alternative to capitalism. All of these instruments, once applied in their purity as regulated by Islamic Law, represent Islamic Trading in its true form and will result in a rapid rise in prosperity.