Is Fiat Currency Shariah Compliant?
To be Shariah-compliant, the objectives of the Shariah (the maqasid al-Shariah) — or the five basic needs — need to be met. These requirements are the protection of religion (deen), the protection of life (nafs), the protection of intellect (aqal), the protection of lineage (nasab) and the protection of wealth and property (mal).
It is argued that since the protection of wealth (mal) cannot be realised with fiat money it does not meet the requirements of the maqasid al-Shariah. In the paper “Fiat Money: From the Current Islamic Finance Scholar’s Perspective” in the journal Humanomics, Jaffar et al argue that fiat money is also not Shariah compliant given its creation of money from nothing (considered as forgery and riba), as well as the negative effects of fiat money on the distribution of wealth, societal relations, and environmental degradation (thus failing the other categories).
To demonstrate visually that fiat currency does not fulfil the requirement for the protection of wealth, one can look at how the purchasing power of the US dollar has decreased since the beginning of the last century.
The Visual Capitalist has an excellent image (here) demonstrating how the purchasing power of the US dollar has decreased following the abandonment of the gold standard under President Nixon. By ending the gold standard, there was no…
