Money has no meaning beyond its concrete existence; it is merely another object with certain physical properties.

The human mind insists otherwise. The mind confers real value and elaborate power on these mere scraps of paper. It infuses money with potent psychological meanings, a surrogate for mortal anxieties and yearnings that lie deep and unexpressed in everyone. The psyche insists that money has meaning. And so does society. By stripping money down to its natural properties, Bene invites the viewer to escape for a moment at least, the bondage of his own mind.

The money illusion is ancient and universal, present in every transaction and absolutely necessary to every exchange. Money is worthless unless everyone believes in it. A buyer could not possibly offer a piece of paper in exchange for real goods – food or clothing or tools – if the seller did not also think the paper was really worth something.

This shared illusion was as old as stone coins and wampum, a power universally conferred by every society in history on any object that was ever regarded as money – seashells, dogs’ teeth, tobacco, whiskey, cattle, the shiny minerals called silver and gold, even paper, even number in account book. …

Modern money, of course, required the same leap of faith, the same social consent that primitive societies gave to their money. Modern money, in fact, was even more distant from concrete reality. Over the centuries, the evolution of money was a long and halting progression in which human societies hesitantly transferred their money faith from one object to another, at each step moving farther away from real value and closer to pure abstraction. The cattle used as currency by some African tribes were, after all, valuable in themselves. If the money illusion collapsed from some reason, the coins were still cattle. The seashells that became precious currency among aboriginal tribes in North America and other continents were desirable Tobacco, which was used as currency in some pre-Revolutionary colonies like Virginia and the Carolinas, was valuable commodity in its own right. Even gold and silver were not entirely useless. They could be fashioned by an artist into beautiful objects.

In that sense, modern money was utterly worthless (and, therefore, more efficient as money because its value did not get confused with the value of real things). The money illusion was now refined to a new level of abstract faith, visible only if one consciously paused to consider how the money process had evolved. At each stage of history one could see money retreating from concrete reality.

Paper money, it is said, originated with the goldsmiths of Europe who held the private gold hoards deposited by wealthy citizens for safekeeping. The goldsmith issued a receipt for the gold deposit, and over time, it became clear that the receipt itself could be used in commerce since whoever owned that piece of paper could go the goldsmith and claim the gold. Modern banking originated in the goldsmiths’ discovery that they could safely write more receipts and lend them to people, exceeding the total gold that was on hand, so long as they always kept a responsible minimum in reserve to honor withdrawals. This was the origin of fractional-reserve banking and the bank lending that created money. This private money system endured for centuries and was inherited by the American Republic: privately owned banks created money by issuing paper bank notes, paper backed by a promise that at any time it could be redeemed in gold. …

The nationalization of currency issuance, completed with the creation of the Federal Reserve in 1913, simply continued this arrangement. A new dimension of trust had added to the illusion.

Finally the last prop for the money illusion was kicked away in this century: the gold standard was abandoned. Demand deposits had been backed by the same promise that applied to currency – any private citizen could, in theory, go to the bank and redeem his money in a quantity of gold. That promise was extinguished by government edict, starting with the waring nations of Europe during World War I, joined belatedly by the United States in 1933. Without the gold guarantee, money was only money – “legal tender for all debts, public and private,” as it says on every Federal Reserve Note. A citizen can still go to the bank and redeem it, but his money will be redeemed only in new, identical Federal Reserve Notes. …

Next the paper itself disappears. Money becomes truly invisible. Americans are now in the midst of this great transition – transferring their money faith again, this time to objects that are even more intangible. Commerce relies increasingly now on transactions in which the social trust is conferred upon plastic cards. The plastic itself money, only a coded key that gives access to money. As computer technology advances and money terminals are placed in every outlet of commerce, the plastic cards will displace both checks and currency as the medium of exchange. The pieces of paper will all but disappear, no longer needed to represent real value.

Excerpt from the book: Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider.

Islam, Murabaha and Fixed Deposits

Islam and Usury

Written by Imran N. Hosein

Islam has declared war on the moneylender who demands interest. It did so in the very last divine revelation (al-Baqarah, 2:279) to come down in the Holy Qur’an. Here is that last revelation:

“O ye who believe! Fear Allah, and give up what remains of your demand for usury (i.e., the interest due on a fixed deposit, or on any other loan on interest), if ye are indeed believers.” If ye do it not (i.e. if you persist in your claim or demand for the interest due to you), then take notice of (a declaration of) war from Allah and His Messenger: but if ye turn away (from such claim or demand), then you are entitled to the return of your capital sum (placed in the fixed deposit or otherwise lent); do not enter into (such) unjust transactions, nor allow yourselves to be subjected to such.

If (you forgo the interest due to you and then find) the debtor in a difficulty (in respect of returning the capital sum that was lent to him on interest), grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.

And (in this matter in particular, i.e., lending money on interest) fear the Day when ye shall be brought back to Allah. Then shall every soul be paid what it earned, and none shall be dealt with unjustly.’ (Qur’an, al-Baqarah, 2:278-281)

Prophet Muhammad (peace be upon him) declared that the consumption of even a Dirham (a silver coin worth a few dollars) of Riba (usury) was equivalent to “committing adultery 36 times”. He also declared that Riba was comprised of 70 parts and that the smallest part (was so bad that) it was equivalent to “a man marrying his own mother”. Indeed “he cursed all four, and declared that they were all equally guilty—the one who took Riba (i.e., the money-lender), the one who gave Riba (i.e., while paying interst on a loan), the one who recorded the transaction (hence bank personnel), and the two witnesses.”

Fifty years ago my own Muslim community of Trinidad and Tobago was led by Haji Ruknuddin (may Allah have mercy on him). He was a leader who both ‘knew’ and ‘lived’ Islam. At that time a Muslim money-lender appeared on the scene and the leader of our community made every effort to get that man to give up his money-lending. When he failed in that effort he responded by prohibiting Muslims from even having a meal in the moneylender’s home. The Muslim community obeyed the command of its leader.

But times have since changed, and our Muslim community is now led, with but few exceptions, by men who neither ‘know’ nor ‘live’ Islam, and by scholars who betray Islam. We even have Muslim leaders here in Trinidad who are consummate money-lenders, placing their money in highest yielding fixed-deposits in the international money market. They then use their bloated check-books that drip with the blood of the masses they have exploited, to bribe their way into winning elections and assuming posts of President-General of Islamic organizations. Those with the intellectual acumen of cattle then legitimize such (checkbook) leaders.

Even Islamic scholars have fallen by the wayside so badly that when a Trinidadian (money-lending) bank organizes a function to commemorate Eid al-Fitr, an Imam who is described as a Maulana accepts an invitation to deliver a feature address at the function. Then his photograft appears in the daily newspaper posing with bank officials. And so, there is both widespread ignorance of the divine law pertaining to the prohibition of Riba, and, worse, wanton violation of that law.

In this essay we direct attention to ‘Fixed Deposits’ as well as to so-called Murabaha transactions in an attempt to explain such to be ‘money-lending’ transactions.

At the heart of the Islamic prohibition of usury (Riba) is the maxim that if you do not plant, you cannot reap. This constitutes a rejection of the false claim to a ‘time-value’ of money. Money by itself cannot increase over time without any input of labor, or without the risk (of loss or of gain) inherent in an authentic business transaction.

The blessed Prophet declared that any transaction involving an exchange of ‘money’ for ‘money’ must be an equal exchange, i.e., with no difference in amount of money exchanged. He declared that an unequal exchange (that would open the door for money to increase over time) would be Riba. Islam also insists that all business transactions must involve risk – and hence ‘profit’ or ‘loss’. Allah Most High can then intervene to distribute and redistribute wealth by taking from some and giving to others. In this way the rich would not remain permanently rich, and the poor would not be imprisoned in permanent poverty

In his masterpiece entitled ‘Merchant of Venice’, William Shakespeare likened Riba or usury to a ‘pound of flesh’. And in a dream Prophet Muhammad saw the moneylender exposed as a ‘bloodsucker’ since he was standing in a river of blood. We noted earlier that the Prophet cursed “all four”, and declared that “they were all equally guilty—the ones who ‘took’ Riba, ‘gave’ Riba, ‘recorded the transaction’, and ‘the two witnesses’.” Whoever dies with the curse of a Prophet upon him can never escape the hellfire. The Qur’an itself declared that the moneylender would be punished with eternal hellfire:

“Those who devour usury will not stand (before their Lord for Judgment) except as stands one whom Satan by his touch hath driven to madness.That is because they claim that: ‘Business is like lending on interest,’ but Allah hath permitted business and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who persist (in claiming the interest due from fixed deposits or other such loans on interest) are Companions of the Hellfire; they will abide therein (forever).”
(Qur’an, al-Baqarah, 2:275)

What then, is the status of someone who makes a ‘Fixed Deposit’ with his money in a bank or any other financial institution? It should firstly be clear that he has not gifted the money. It must also be recognized that he has not entered into a ‘business’ transaction since he is guaranteed the return of his money plus an additional amount. There is no risk. There is no possibility of loss. And hence that is not business! In fact, in making a ‘Fixed Deposit’, he has lent his money on interest (Riba), and has hence become a cursed moneylender. Those (Muslims, Christians, Hindus, etc.) who read this essay and, in consequence of fear of Allah’s eternal punishment, promptly respond by breaking their ‘Fixed Deposits’, would want to know what they could do with their Riba money. They can neither use it themselves, nor can they give it to others as charity.

BACK-DOOR RIBA

Islamic Banks and other Islamic financial institutions are today lending money on interest through the back-door by disguising a loan as a sale on credit. They call it murabaha! But it is most certainly not murabaha! It is Riba! What the bank does is to offer an item on sale in a credit transaction with a price substantially higher than the cash price. While credit transactions are Halal, since the blessed Prophet (sallalahu ‘alaihi wa sallam) himself engaged in such transactions, there is no evidence that the credit price in such transactions was ever higher than the cash price. When credit price is higher than cash price then the implication would be that time has value. And the essence of Riba is that money grows over time. When a client wishes to purchase something, but does not possess the cash with which to purchase it, the so-called Islamic bank enters into the fiction of purchasing the item at its cash price and then selling it to the client on credit. The interest charges are added to the selling price thus making a credit price for the item substantially higher than the cash price.

In fact the bank never actually purchases the item. Rather, it writes out a check to the client who then purchases the item in his name with the bank holding a lien on the item until the sale price is eventually paid to the bank. The bank therefore sold something that it never actually owned – and that is Haram! In actual fact the ‘sale’, also, was entirely fictitious. What the bank actually did was to ‘lend’ a specific sum of money on interest over a specific period of time and to then denominate the ‘loan’ in the amount of a final total that included the total interest payments as money due on a ‘sale’.

It is when the client defaults on payment of installments of money due to the bank that one is treated to ridiculous and utterly scandalous financial gymnastics. Consider the following: a client entered into a so-called murabaha transaction with an unnamed Islamic Bank to purchase a house with a market price of $500,000. The bank wrote out the check to him for $500,000. with which he then purchased the house in his name. He thus became legal owner of the house. The bank then transacted with him a fictitious sale agreement to sell to him on credit a house that the bank never owned (and hence could not sell) for a total of $1 million. The difference between the credit and cash prices was thus $500,000.

One month after entering into the agreement the client defaulted on his payments. The bank then repossessed the house and sold it on the open market for $500,000. But the bank went on to sue the client for an outstanding balance of almost $500,000. The court, however, dismissed the claim and ruled that the bank was entitled to nothing more than the interest payment for the actual duration of the contract (i.e., the amount of time it took the bank to recover its $500,000.)

We have a stern warning to deliver to those scholars of Islam who persist in defending the so-called murabaha transactions of Islamic Banks today. They defend the transaction with Fatwas (fatawa) that are as invalid as the Fatwas (fatawa) which today blindly declare paper money of the modern world to be Halal, and would equally blindly declare tomorrow’s ‘electronic money’ to be Halal. If they obstinately persist in their defense of today’s so-called Murabaha transactions, and then learn in Allah’s court that it was not Murabaha but Riba, at that time they cannot plead for mercy from Allah for they will have misguided people, nor can they say “I did not know”.

Hedging with the Gold Dinar by Dr. Ahamed Rameel Mydin Meera.

The 1997 East Asian currency crisis made apparent how vulnerable currencies can be. The speculative attacks on the Ringgit, for example, would have devastated the economy if not for the quick and bold counteractions taken by the government, particularly in checking the offshore Ringgit transactions. The need for firms to manage their foreign exchange risk also become apparent.

Many individuals, firms and business found themselves helpless in the wake of drastic exchange rate movements. Malaysia’s being among the most open economies in the world in terms of International trade reflects the degree of its exposures to foreign exchange risk. The economist magazine’s Pocket World In Figures (2002 edition) ranks Malaysia the second most trade dependent country in the world. Trade as a percentage of gross domestic product is 92 percent for Malaysia, even higher than for Singapore, which ranks third with a figure of 78.8 percent.

Today, exchange rate risk is a marked phenomenon in the floating exchange rate regime. Many international investment, trade and finance dealings are shelved due to the unwillingness of parties concerned to bear the foreign exchange risk so that they may concentrate on what they are good at and eliminate or minimize a risk that not their trade.

Elsewhere, traditionally, currency derivatives-forward, futures and options contracts-have been used for this purpose. However, in many nations including Malaysia, futures and options on currencies are not available. The Malaysian Derivatives Exchange (MDEX) makes available a number of derivatives instruments - Kuala Lumpur Composite Index Futures, Index Options, Crude Palm Oil Futures and Kuala Lumpur Inter-Bank Offered Rate Futures — but not Ringgit futures or options.

Even in countries where currency derivative markets exist, not all derivatives on all currencies are traded. At the Philadelphia Stock Exchange in US for example, derivatives are available only on selected major world currencies like the Yen, Sterling and Australian Dollar - against the US dollar, mostly. For most other currencies of the world, including those of almost all developing nations, there are no formal tools for hedging the foreign exchange risk that has become immensely significant in today’s global business environment.

Recently Dr. Mahathir Mohamad mooted the idea of a gold payment system - the gold dinar - to settle bilateral and multilateral trades among countries and thereby eliminate foreign exchange risk. In this mode, gold is to be used as a medium of exchange and as a unit of account instead of the national currencies. Prices of export and imports are to be quoted in units of gold weights. It is important in this structure that gold itself and not national currencies backed by gold, is used for pricing, for otherwise it would not then be different from the gold standard in the past. Instruments backed by gold are vulnerable to easy abuse -which is what brought on the failure of the gold standard. In the gold dinar system, the central bank would play a important role of keeping national trade accounts and providing a secure place to keep gold. When Malaysia trades with Indonesia, for example, the gold accounting is kept through the medium of the central banks of both countries and only the net difference between the two is settled periodically. Nevertheless, every transaction in essence involves gold “movement”.

Since bilateral and multilateral trades are ongoing processes, any gold that needs to be settled can always be brought forward and used for future transaction s and settlements. On the ground, commercial banks that support gold accounts are viable partners in the implementation of the gold dinar system.

International trade and finance participants would deal with the commercial banks that provide such gold account. These commercial banks would in turn have gold accounts with their respective central banks. The above structure may sound a lot like the gold standard, but it is not. Gold and not gold backed instruments, is the medium here.

As an example, consider that Malaysia 100 bullion gold worth of good and service to Indonesia. While importing 80 bullion worth. Hence, Malaysia has a surplus trade of 20 bullion. Indonesia needs to settle only this difference of 20 bullion. However, this amount could be used for settling future trade imbalances between the countries is not necessary. Note that this simple structure eliminates exchange rate risk. This means there is no need for forward, futures or options trades on the currencies. All countries, including those without such derivatives markets, can enjoy this benefit. After all, developing a derivatives market is costly and time consuming. It also introduces in efficiency to the market since additional transaction costs need to be incurred.

Unlike the forward, futures or options markets, the gold dinar does not depend on speculators for increased liquidity. By being a global currency, it is capable of providing the need liquidity without bestowing any “unfair” seignorage on any particular currency. Also, unlike imperfections of hedging that are likely to happen with forward contracts, futures and options due to the standardized nature of these contracts, the gold dinar does not introduce such imperfections.

With the gold dinar, the hedging cost is fixed against gold, but note that even when hedging is done in any currency denomination, there is still risk in the fluctuation of that currency. Gold is superior here because it has intrinsic value. A hedger also pays neither the initial margin nor daily variation margins, as is the case with currency futures. Such margins are potential cash flow burdens on hedgers. Even though the International gold price may fluctuate, the participants in a gold dinar system realize that unlike national currencies, gold has a stable intrinsic value that can be depended upon for continuous trade into the future. Even though with the existence of national currencies speculation and arbitrage on the price of gold could tempt a participating country to redeem of sell its gold, it should resist such temptations for the sake of stable and continuous future trades.

A regulation requiring that the gold stock with the central banks be used only for settling real transactions may be necessary. At this juncture, one may be ask the question: How does this structure differ from a simple barter trade between countries?. The advantage is that gold acts as a unit of account and thereby eliminates problems associated with barter.

The gold dinar would also reduce speculation and arbitrage between national currencies. For example, if three countries agree to use the gold payment system, then it is akin to the three currencies. Becoming a single currency. Accordingly, speculation and arbitrage among these three currencies will be reduced or even eliminated. This “unification” of the three currencies through the gold dinar provides diversification benefits.

It is like obtaining diversification through a portfolio of shares. Individual currencies face risks that are unique to the issuer country. For example, political turmoil can cause a national currency to depreciate, but in unified currency such risks would be reduced. In fact, since people of all races, creeds and nationalities treasure gold, it is suitable global currencies that enjoy global acceptance.

This means no single country’s unique risk may be significantly embedded in gold. However, the gold dinar system entail legal obligations between the parties concerned, just like the forward and futures contracts and it may not be easy for a trader to remove this obligation easily as is possible with futures.

In my opinion, the gold dinar if implemented is similar to the forward contract but with its problems of “barter”, speculative and arbitrage elements removed; and are also a superior tool for managing foreign exchange risk compared to the futures and option contracts.

The gold dinar is likely to reduce transaction cost too, since only accounting record need to be kept. Transactions can be executed by means of electronic media with minimal cost. Hence, for international trades in this system, one no longer needs to open a letter of credit with a bank, incur exchange rate transaction costs (that is, the differrent buying and selling rates for currencies) or even face exchange rate risk.

The gold dinar system also reduces the need to create large amounts of national currencies through multiple deposit creation in the banking sector. This therefore reduces the possibility of excessive speculation and future attacks on the Ringgit like the one in 1997. The banking sector can compensate for this “implied” loss by viewing the gold dinar system as an opportunity and thereby providing the necessary services in collaboration with the central bank.

The current global financial system is showing signs of instability, which in my opinion is partly but significantly due to the fiat nature of money. The problem lies with its attribute that is created and destroyed in the financial system. Such instability is currently observable in the US. The financial distress depicted by a number of huge firms lately is bound to destroy a large sum of fiat money that in turn can be expected to bring about a banking crisis just like that experienced in Malaysia 1997-98.

Gold, on the other hand, has all the characteristics of a good currency; it is desired and highly valued for its own sake, homogenous, stable, durable, divisible and mobile; and can neither be created nor destroyed. It can thus play the role of a stable international unit of account that is profoundly missing in the current floating exchange rate system since the demise of the Bretton Woods in 1971.

Perhaps we can take our cue from Nobel laureate Robert Mundell, who predicted that gold would again be part of the international monetary system in the 21st centurys.

My comment:

Actually, Prophet Muhammad has prophesied first the return of the the use of precious metals which have intrinsic value in them. And this is also a sign that the fraudulent system of fiat money and the International Monetary System nowadays which is controlled by a group of bloodsucking predatory Elite will collapse:

Abu Bakr ibn Abi Maryam reported that he heard the Messenger of Allah, may Allah bless him and grant him peace, say: “A time is certainly coming over mankind in which there will be nothing [left] which will be of use save a dinar and a dirham.” (The Musnad of Imam Ahmad ibn Hanbal)

The banker ( A Conventional or an ‘Islamic’ banker) who offered loan based on Riba’ to the mass people by using their sweet smile and words are no different than a pimp that live off the sweat of others to ‘pimp’ their lifestyle, to ‘pimp’ his ride (the show Pimp My Ride), to buy luxurious home to live happily and ‘virtuously’ by offering their five time prayers in congregation with his wif(v)e(s) and children in air conditioning room with praying mattresses worth RM100 a piece from Turkey and make a du’a after prayer and thank God with the ‘bountiful’ life and ‘rezki’ that are given by God most high to him; and after Maghrib he teaches Muqaddam to his children comfortably in air conditioning room ‘virtuously’ while his ‘obedient’ wife is preparing the dinner for them and serving it on a dinner table that worth RM5000 from Italy while the mass people out there are working like jackasses to let them live an affluent life. The only fault of the mass people are borrowing money from this ‘virtous’ banker.

Allah said in the Holy Qur’an:
“…man is entitled to nothing except that for which he labored. (Qur’an, al-Najm, 53:39).

Diametrically opposed from this verse, the bankers are entitled a bountiful of wealth from the sweat of others.

The use of paper money (fiat money, funny money - a legal tender or decree by government) which value decreases time and again is a pretext of total slavery upon the mass people. Money then become the god almighty where people have to ‘submit’ to this new ‘god’ and have to work like jackasses to buy bread and rice while this blood-sucking predatory Elite is eating halwa in his ‘five star’ house with his children and ‘obedient’ wife while planning the next family vacation in Disneyland. This is what was prophesied by Prophet Muhammad s.a.w., “Nearly poor life(destitution) led to kufr.”

Allah said in the Qur’an time and again: …do not deprive people of what is rightfully theirs by diminishing the value of their things (al-‘Araf. 7:85; Hud, 11:85; al-Shu’ara’, 26:183; etc). The use of paper money that keeps losing its value is a manifest example related to this verse.

Truely, this is the time of the Ummah of Muhammad of nowadays to wake up from their deep sleep and analyze themselves whether they are already entering the lizard hole.

Prophet Muhamad s.a.w. said: Abu Sa’id al-Khudri reported Allah’s Messenger (may peace be upon him) as saying: You would tread the same path as was trodden by those before you inch by inch and step by step so much so that if they had entered into the hole of the lizard, you would follow them in this also. We said: Allah’s Messenger, do you mean Jews and Christians (by your words)” those before you”? He said: Who else?” (Sahih Muslim).