Nature of money in Sharia

Money is the pillar of commerce and the specialization and division of labor within and across countries. Oresme (fourteenth century) and Copernicus (1526) maintained that if the government debases money, it will inflict damage to trade and property. Without money, any economy will collapse into starvation and social disorder. ¹ Money was a commodity, an equivalent in labor and capital content to another commodity in exchange, which enters the circulation, as any other commodity, via production and exchange. ² Its price in relation to other commodities obeyed strictly the laws of supply and demand. Although many commodities served as money, gold and silver superseded all commodities, and became universal money throughout the centuries in all countries (Smith 1776; Gouge 1833; Mises 1953; Rothbard 1962). Today, in all countries, money is fiat inconvertible paper emitted by a central bank; it is a monopoly of the government. In addition, credit money is emitted by both the central bank and the banking system. All money supply, defined as currency in circulation and credit money, is regulated by the central bank within its monetary policy framework. Generally, the central bank increases money supply via many channels ³ to attain a target consumer price inflation rate, e.g., 3 percent per year.