Presentation by Ascarya (Senior Researcher of Central Bank of Indonesia

1. Framework Ekonomi Baru Berbasis Prinsip
Islam
UIN Jakarta, October 7, 2013
A s c a r y a
Center for Central Banking Research and Education

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1. FOUNDATION
A. PHILOSOPHICAL AND CONCEPTUAL FOUNDATION OF ISLAMIC ECONOMICS:
1. Tawhid (God’s unity and sovereignty): every individual is equal in the sight of Allah; provides for
freedom of action whereby each individual is viewed as an integral part of the whole; continuous
and sustained system through “risalah (God’s prophets as the source of divine guidance); akhirah
(life-after death, that is the continuity of life beyond death and a system of accountability based
on divine law) (Ahmad, 2003: 193).
2. Al-‘adl wa’l-ihsan (Equilibrium and Beneficence-Socio-Economic Justice): Individuals are expected
to establish justice (’adl) and promote beneficence (ihsan), which, consequently “denote a state of
social equilibrium” (Naqvi, 1994: 267); “giving everyone their due”, together with tawhid it
“results in attaining high levels of good life (hayat al-tayyebah), both individual and collective”
(Ahmad, 2004: 193); equitable distribution of income and wealth within the growth and stability
oriented policies.
3. Ikhtiyar (Free-will): “both unrestricted and voluntary” (Naqvi, 1994: 29); it is guided by broad
guidelines in order “to interpret-reinterpret that freedom within specific societal contexts, and to
suit the needs of changing times” (Naqvi, 1994: 31; emphasis is original).
4. Fard (Responsibility): being vicegerent of Allah on earth; having responsibility towards God, to
his/herself and the others in the society, as an integral part of the totality of mankind” (Naqvi,
1994, 33).

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A. PHILOSOPHICAL AND CONCEPTUAL FOUNDATION OF ISLAMIC ECONOMICS:
5. Tazkiyah; “concerned with growth towards perfection through purification of attitudes and
relationships”, growing in harmony in every aspect of life; falah, prosperity in this world and the
hereafter” (Ahmad, 1994: 20).
6. Khilafah and human accountability before God: Allah (swt) created human beings with the role of
being God’s vicegerent on earth; universal solidarity, sustainable consumption of resources, which
are trust from God, pursuing a humble life-style, and having human freedoms to conduct daily life;
IE system is based on two dimensional utility function, both of which works in positive correlation
with each other, i.e. the more social good one does in this world, the more sawab or glad tidings
one will get in the hereafter.
7. Maqasid-al Shariah or the objectives of Shari’ah described by al-Ghazali (d. 505 AD); Islamic
economic principles must lead to ‘human well-being’; Siddiqi (2004) includes broader measures
ensuring welfare [as] asserted by Ibn e Qayyim … who emphasized justice and equity.
Each of these axioms constitutes the foundational principles of the Islamic economic system, which
are entirely different than the axioms and foundational principles of any other system. “The
universal ethical system, based on these axioms, is [therefore] believed to produce policies aimed at
enhancing motivation to seek knowledge and work, enhance productivity, and enhance transparency
in government. They should also enhance intra-and intergenerational equity” (Naqvi, 1994). Thus,
they provide the rationale for the IE system (see: Naqvi, 1994; and Arif, 1989 among others).
1. FOUNDATION

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B. METHODOLOGY OF ISLAMIC ECONOMICS:
1. Sociotropic individual, for whom not only individualism but social concern is a prerequisite;
2. Behavioral postulates: socially concerned God-conscious individuals who:
a. in seeking their interests concern with the social good;
b.conducting economic activity in a rational way in accordance with the Islamic constraints
regarding individual and social environment and hereafter; and
c. in trying to maximize his/her utility seek to maximize social welfare as well by taking into
account the hereafter as well.
3. Market exchange is the main feature of economic operation of the Islamic system; however, this
system is filtered through an Islamic process to produce a socially concerned environmentally
friendly system. In this process, socialist and welfare state oriented frameworks are avoided not to
curb incentives in the economy.
1. FOUNDATION

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C. MECHANISMS AND INSTRUMENTS OF ISLAMIC ECONOMIC SYSTEM:
1. Positive measures, such as zakah (compulsory alms-giving) to respond to the needs of the poor.
Instead of giving to individual poor for their immediate consumption, developing projects for the
sustainability and survival of the poor is the new strategy with zakah funds. Hisba is another
important positive measure or institution of Islamic economics system to regulate the market
mechanism by responding its failures and shortcomings and overcoming its excesses.
2. Voluntary measures, such as sadaqha (charitable giving), aims at providing the immediate needs
of individual. Waqf, or pious foundations, as part of the voluntary third sector aims to provide the
goods and services which could not be provided or could not be sufficiently provided due to the
failure of the market mechanism as well as government failure. For instance, in addition to awqaf
aiming at providing health services, education, and food distribution etc., the use of funds
accumulated in waqf in efficient manner is being developed through cash-waqf to enhance their
contribution to the economic development of the societies.
3. Prohibitive measures, such as riba, which is pre-determined interest. It is prohibited as it is
unlawful gain in terms of not being product of productive economic or financial activity. Islamic
economics proposes profit and loss sharing and risk taking and sharing against pre-determined
capital gains to motive the individuals to actively engage in the economy. The objective of the
prohibition of riba is not only social justice but also economic and social optimality.
1. FOUNDATION

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2. ISLAMIC ECONOMIC SYSTEM
Price
Stability
Economic
Growth
Employment
FALAH
Full
Employment
& Growth
Justice &
Equitable Dist.
of Income &
Wealth
Stability in
the Value of
Money
Conventional Economic Objectives Islamic Economic Objectives
FALAH: wellbeing and prosperity in this
world and the hereafter.
A. OBJECTIVES OF ISLAMIC ECONOMIC SYSTEM:

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PILLAR ISLAMIC IDEAL ISLAMIC CONTEMPORARY
Mode of
Transaction
Main: PLS; and Trade
(No Riba, Gharar and Maysir)
Main: Trade; and PLS
(No Riba, Gharar and Mysir)
Money System Full Bodied (or backed-up) Money Fiat Money
Banking System Narrow Banking Fractional Reserve Banking
Idle Asset Obligatory Zakat (Tax on iddle asset) Voluntary Zakat
Capital Base Voluntary Awqaf Voluntary Awqaf (under developed)
B. PILLARS OF ISLAMIC ECONOMIC SYSTEM
 Ekonomi Islam terkait dengan aktifitas kolektif manusia dalam rangka menjamin berputarnya harta
diantara manusia, sehingga manusia dapat memaksimalkan fungsi hidupnya sebagai hamba Allah
untuk mengemban amanah dan mencapai falah di dunia dan akherat.
 Ekonomi Islam pada dasarnya adalah ekonomi yang berbasiskan kegiatan produktif dan perniagaan
di sektor riil. Tidak ada dikotomi sektor keuangan/moneter dan sektor riil.
 Sektor keuangan/ moneter secara terbatas hanya merupakan sektor yang terkait dengan arus uang
(modal) pada aktivitas investasi sektor riil, baik oleh swasta maupun pemerintah, sehingga sektor
keuangan berfungsi sebagai pendukung sektor riil.
2. ISLAMIC ECONOMIC SYSTEM
 IMF Article IV.2  Prohibition to use gold as standard of exchange

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Pasar RiilD S U S S U
Sektor Riil
Baitul Maal
Ms,Tx, Z, If, Sh, Wq
LKS
2. ISLAMIC ECONOMIC SYSTEM
 Lembaga otoritas keuangan dan lembaga otoritas fiskal tidak terpisah, namun berada pada satu
institusi yang dikenal dengan Baitul Maal (Treasury House).
 Baitul Maal menangani urusan mengatur penerimaan atau pendapatan dan pengeluaran atau
belanja negara (otoritas fiskal) menggunakan instrumen pajak (Tx), zakat (Z), infaq (If), shadaqah
Sh), waqaf (Wq), dan lain-lain, sekaligus menangani urusan mengatur uang beredar dalam
perekonomian (otoritas moneter) menggunakan instrumen uang beredar (Ms).
C. CHARACTERISTICS OF ISLAMIC ECONOMIC SYSTEM

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2. ISLAMIC ECONOMIC SYSTEM
D. CHARACTERISTICS OF ISLAMIC FINANCIAL SYSTEM
Aktifitas keuangan yang dilarang:
•Riba (interest based activities)
•Maysir (speculative motive)
•Gharar (unclear information)
Aktifitas keuangan yang
dibolehkan:
•Bagi Hasil
•Jual Beli
•Titipan dan Jasa
•Sosial (ZISWaf)
Karakter Dasar
•No/less money creation
•No money whirlpool/money
concentration/bubble
•No financial detachment
•Penuh mendukung sektor riil
•Trust + Understanding on
business & partners
•Mendorong keterlibatan
ekonomi golongan dhuafa
Implikasi Antara
Stabilitas Sistem
Keuangan
•Penciptaan lapangan
kerja
•Pertumbuhan ekonomi
•Pengentasan kemiskinan
Implikasi Makro
Objek transaksi halal dan thayyib:
•No khamar
•No daging babi
•No pornografi
•No pencemaran lingkungan
•No masalah sosial
•No perusakan alam &
lingkungan
•Stabilitas sosial
•Kelestarian alam &
lingkungan

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3. History of Money and Monetary System
 The most popular historical currencies were ‘gold coins’ of Roman empires, ‘gold Dinar coins’ (Denarius) of
Byzantine empires and ‘silver Dirham coins’ of Sassanian/Persian empires.
 In the early period of Islam, currencies which were commonly used as money include gold Dinar coins
(weighing 4.25 grams with 91.7% fineness of gold) and silver Dirham coins (weighing 2.975 grams).
 In the time of Umayyad Caliph Marwan Ibn al-Hakam (684-685 M), he had a man’s hand cut off for cutting up a
Dirham or silver currency.
 In the 11th century, English used silver pennies as its currency where one pound of silver was minted into 240
silver pennies. By 1666, one pound of silver was minted into more than 700 pennies at the Royal Mint.
 In the time of Sultan Al-Dzahir Burquq (Utsmaniah Empire 781 H), the use of alloyed silver minted by Sultan al-
Dzahir Baibras was cancelled and replaced with copper Fulus. Later in 14th century, hyper inflation in Egypt
occurred due to overly minted Fulus (copper or bronze) currency by the government.
 Following its foundation in 1694, the Bank of England (BoE) issued ‘paper receipts/money’ backed by 100
percent gold or silver and fully convertible upon demand. Later on, BoE issued paper money or bank notes on
certain reserve ratio, so that paper money supply far exceeded the underlying gold or silver. Consequently, the
first two crises of the century in 1825 and 1837 in England were due to over issue of bank notes.
 In 1839 M Utsmaniah Empire, paper money “al-Qa’imah” was issued and lasted for 23 years. In 1862 M, the
circulation of al-Qa’imah was suspended due to too much al-Qa’imah in circulation (El-Diwany, 2002).
 World gold standard regime was finally demised in 1915, and subsequently was followed by crises and
depressions, started with depression in Japan (1920), hyper inflation in Germany (1922-1923), and finally
manifested into the great depression in 1929-1930 (Davies and Davies, 1996). Subsequently, financial crisis
have hit Austria (banking crisis in 1931), France (hyper inflation in 1944-1946), Hungary (hyper inflation and
monetary crisis in 1944-1946), German (hyper inflation in 1945-1946), and Nigeria (banking crisis in 45-55).

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 In April 1933, gold coins were demonetized by the US Government, and were no longer permitted as legal
tender. In exchange for the gold coins and bullion, the Federal Reserve Bank, which is a private bank, offered
paper currency (i.e., US dollars) with an assigned numerical value of $20 for every one ounce of gold. Most
Americans rushed to exchange their gold for paper currency, but those who were aware of the rip off that was
about to take place bought gold with their paper currency and then shipped the gold away to Swiss banks
(Hosein, 2007).
 The British government also demonetized gold coins in the same year as the US in 1933. They did so through
the simple expedient of suspending the redeemability of the sterling paper pound into gold (Hosein, 2007).
 The US Government has arbitrarily devalued the US paper dollar by 41% and to then rescind the law of
prohibition concerning gold that was previously enacted. The American people rushed back to exchange their
paper currency for gold at the new exchange value of $35 per ounce of gold. In the process, they were robbed
of 41% of their wealth (Hosein, 2007).
 Less than two years earlier, in September 1931, the British pound was devalued by 30% and this gradually
increased to 40% by 1934. France then followed with a devaluation of the French Franc by 30%, the Italian Lira
was devalued by 41%, and the Swiss Franc by 30%. The same thing subsequently happened in most European
countries. Only Greece went beyond the rest of Europe to devalue its currency by a whopping 59% (Hosein,
2007).
 In the period under Bretton Woods Agreements in 1950-1972, strict fixed exchange rate international monetary
arrangements was in place, where US Dollar as world currency was pegged to gold (one troy ounce of gold is
equal to 35 US Dollar) while other currencies were pegged to US Dollar, with the guarantee that US Dollar was
exchangeable to gold in any time.
3. History of Money and Monetary System

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 The Bretton Woods era has known as a golden age, where personal income increases, the volume of world
trade increases, investment increases, and international economic stability maintained. David Felix stated that
there is no long period of time, in the past or present which is comparable or closely resemble to the
achievement (the high production, high productivity, low unemployment, and just distributive income) of
Bretton Woods era.
 The Bretton Woods agreements finally collapsed in 1971, when the US unilaterally terminated the convertibility
of US Dollar to gold. The US enjoyed huge seigniorage profits from printing fiat currency without gold back up.
Other countries finally followed the US to use fiat money and adopted floating ER.
 The value of a currency is relatively stable when it is backed by gold. But, when a currency has no more back up
from gold, its value depreciates quickly. A research conducted by Prof. Roy Festrem of Berkeley University
concluded that in the span of 400 years up to 1976 the price and value of gold has been relatively stable, even
has slightly been appreciated (Sanrego and Ali, 2008).
 In 1800, the price of gold was equivalent to 19.39 US Dollar per troy ounce, while before the breakdown of
Bretton Woods Agreement in 1971, the price of gold was equivalent to 35 US Dollar per troy ounce. But in
2004, the price of gold has jumped to 455.75 US Dollar per troy ounce, and at the end of 2008 it has jumped
again to 769.40 US Dollar per troy ounce. Currently (April, 2011), the value of one troy ounce of gold has sky
rocketed to reach $1500.
 Following the collapse of Bretton Woods Agreements, financial crises have resurfaced more frequently started
in England (banking crisis in 1973-74), industrial countries (deep recession in 1978-1980), developing countries
(debt crises in 1980-1982), US and UK (great crash of stock exchange in 1987), Mexico (financial crisis in 1994),
Asian countries, Russia, Brazil and Argentina (financial crisis and hyper inflation in 1997-1999), and finally the
recent subprime mortgage crisis in the US that has spread out all over the world.
3. History of Money and Monetary System

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 Inspired by the crises in England, David Hume (1711-1766 M) proposed a theory of ‘beneficial inflation’ with
the hypothesis that increasing the money supply would raise production in the short run and may not raise the
price at all in the long run. But, John Maynard Keynes (1883-1946 M) was the one who in 1936 (in his magnum
opus, The General Theory of Employment, Interest, and Money) successfully developed Hume’s idea into
formalized model of what the Austrian school called ‘inflation economics’.
 This inflationary economics with the use of fiat money (augmented with the use of interest system) and the
prohibition of gold money has been fully enforced and internationalized by IMF. The Articles of Agreement of
the IMF prohibited the use of gold as money. It did so by prohibiting any link between gold and paper
currencies other than the US dollar.
 Art. 4 Section 2(b) of the Articles of Agreement stated: “exchange arrangements may include (i) the
maintenance by a member of a value for its currency in terms of the special drawing right or another
denominator, other than gold, selected by the member, or (ii) cooperative arrangements by which members
maintain the value of their currencies in relation to the value of the currency or currencies of other members,
or (iii) other exchange arrangements of a member's choice.”
 This Art.4 Section 2 (b) has been questioned by a member of US Congressman in April 2002, since he
acknowledged that gold as currency is the most effective means of monetary stability. Rab (2006) also believes
that gold as money or medium of exchange is the most stable and reliable measure of price.
 Keynes’ ‘inflation economics’, although severely criticized by Austrian school, has been adopted by most
today’s government all over the world (as member of IMF), which necessitates the establishment of central
bank as monetary authority to control the money supply and inflation in the economy through the conduct of
monetary policy and the understanding of monetary policy transmission mechanism (MPTM).
3. History of Money and Monetary System

14. 14
• “By this means (seigniorage) government may secretly and unobserved, confiscate the wealth of
the people, and not one man in a million will detect the theft“ (John Maynard Keynes)
• Inflation is a deliberate ideological and political choice of ‘economic regime’ adopted by the
government to profit from seigniorage income.
Letter of US Congressman to Federal Reserve Bank and US Treasury Dept. (April, 2002)
Dear Sirs:
I am writing regarding Article 4, Section 2b of the International Monetary Fund (IMF)'s Articles of Agreement. As
you may be aware, this language prohibits countries who are members of the IMF from linking their currency to
gold. Thus, the IMF is forbidding countries suffering from an erratic monetary policy from adopting the most
effective means of stabilizing their currency. This policy could delay a country's recovery from an economic
crisis and retard economic growth, thus furthering economic and political instability.
I would greatly appreciate an explanation from both the Treasury and the Federal Reserve of the reasons the
United States has continued to acquiesce in this misguided policy. Please contact Mr. Norman Singleton, my
legislative director, if you require any further information regarding this request.
Thank you for your cooperation in this matter.
Ron Paul
U.S. House of Representatives
Note: Neither the Federal Reserve Bank nor the US Treasury Department has so far responded to this request for
an explanation. Source: Hossein (2007)
3. History of Money and Monetary System

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Lietaer (2008) on world’s money system: “we are all embarked on a huge planetary machine running
on autopilot. And we seem to have lost the capacity to slow it down, without risking its collapse.”
Money in Contemporary Monetary System

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Money in Contemporary Monetary System
Money has been expanded into various different forms: Fiat Money, Bank Money, Plastic
Money, Electronic Money, Derivatives, etc. + SPECULATION.
• M0: Currency or money in circulation  fiat money  private goods.
• M1/M2 (DD, SD, TD): Fractional Reserve Banking  money multiplier: 12.
• M3: Investment/Shadow Banking  leverage: 26 – 83 times.
• M4: Credit Card  new purchasing power.
• Derivatives.
• Speculation.
“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is
controlled by its system of credit. Our system of credit is concentrated. The growth of the nation,
therefore, and all our activities are in the hands of a few men. We have come to be one of the
worst ruled, one of the most completely controlled and dominated Governments in the civilized
world no longer a Government by free opinion, no longer a Government by conviction and the
vote of the majority, but a Government by the opinion and duress of a small group of dominant
men.” (Woodrow Wilson, the president who signed in 1913 the Act creating the Federal Reserve)
Note: Cost of Hajj
o 1997≈97 Dinar; 2000≈70 Dinar; 2003≈50 Dinar; 2007≈30 Dinar; 2010≈22 Dinar; 2012≈15 Dinar.

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4. CONTEMPORARY IE SYSTEM
A. PILLARS OF CONTEMPORARY ISLAMIC ECONOMIC SYSTEM
PILLAR ISLAMIC CONTEMPORARY CONVENTIONAL
Mode of
Transaction
Main: Trade; and PLS
(No Riba, Gharar and Mysir)
Main: Interest
(Speculation is allowed)
Money System Fiat Money Fiat Money
Banking System Fractional Reserve Banking Fractional Reserve Banking
Idle Asset Voluntary Zakat No rules on idle asset
Capital Base Voluntary Awqaf (under developed) N/A
 IMF Article IV.2  Prohibition to use gold as standard of exchange
 Monetary management in Islam is to achieve money demand (for transactions and for cautionary
needs) stability and to direct the money demand toward important productive activities needed
by the society.
 There is no parallel dichotomy between monetary and real sectors, since monetary sector always
links and follows real sector.
M . V = P . Q  V = (P . Q)/M
 Monetary policy in Islam is a response to the activities in the real sector and a policy that can
speed up the velocity of money in the real sector and that can discourage hoarding of money.

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Pasar RiilD S U S S U
Sektor Riil
Otoritas Keuangan
Pasar
Keuangan
Inst. Sosial
Z, If, Sh, WqMs,r, Tx, Tr
LKS
Sektor Keuangan
4. CONTEMPORARY IE SYSTEM
B. CHARACTERISTICS OF CONTEMPORARY ISLAMIC ECONOMIC SYSTEM
 Ekonomi Islam kontemporer adalah ekonomi yang tetap berbasiskan kegiatan produktif dan
perniagaan di sektor riil, namun memiliki pasar keuangan Islam yang mendukung pasar riil. LK
Islam kontemporer berfungsi sebagai lembaga penghubung sektor keuangan dan sektor riil.
 Ekonomi Islam kontemporer beroperasi dalam dunia ekonomi konvensional yang mengenal adanya
pemisahaan (dikotomi) paralel antara sektor keuangan dan sektor riil, sehingga lembaga otoritas
keuangan pada perkembangannya terbagi dua menjadi otoritas moneter dan otoritas fiskal.
 Institusi sosial menjalankan sebagian fungsi Baitul Maal atau otoritas fiskal yang belum tertangani
dalam urusan sosial menggunakan instrumen zakat (Z), infaq (If), shadaqah (Sh), waqaf (Wq), dll.

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Deficit
Sector
Surplus
Sector
PLS Sukuk
Other Sukuk
Stock
Islamic
Investment
Banks
Islamic Funds
Islamic
Insurance
Islamic
Commercial
Banks
Fund
Units
Surplus
Sector
Deficit
Sector
Policies
PLS Financing
Others
PLS Investment
Others
IndirectFinancingDirectFinancing
C. CONTEMPORARY ISLAMIC FINANCIAL INSTITUTIONS ARCHITECTURE:
4. CONTEMPORARY IE SYSTEM

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4. CONTEMPORARY IE SYSTEM
D. PROBLEMS OF CONTEMPORARY ISLAMIC ECONOMIC SYSTEM
FINANCIAL/MONETARY SYSTEM
 Fiat Money;
 Fractional Reserve Banking System;
 Riba in sophisticated forms: shadow banking, derivatives, credit card, etc.;
 Maysir in sophisticated forms: future, forward, hedging, margin trading, etc.;
 Deviations of Islamic modes of finance: mudharabah wal murabahah, revenue sharing, tawarruq,
murabahah deviations, etc.; deviation of Shariah compliance;
 Weakness/non-existance of Hisbah institutions  price distortions;
 Central bank does not have access to the real sector  can not stimulate V.;
 There exists parallel dichotomy between monetary (financial) and real sectors;
 Lack of Islamic benchmarks (such as real sector risk and return);
 Domination of conventional financial system;
“A time is certainly coming over mankind in which there will be nothing (left) that will be of use (or
benefit) save a Dinār (i.e., a gold coin) and a Dirham (i.e., a silver coin)."
(Hadith Al Miqdam bin Ma’di Karib in MUSNAD AHMAD – Vol.4, pp.133, no.17664, arabic version; MUSNAD AHMAD – no.16569,Ensiklopedi Hadits: Kitab
9 Imam)

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4. CONTEMPORARY IE SYSTEM
D. PROBLEMS OF CONTEMPORARY ISLAMIC ECONOMIC SYSTEM
FISCAL SYSTEM
 Voluntary Zakat system; Excessive spending; Excessive sovereign debt; Excessive tax; Fiscal deficits;
Government interventions; Fiscal leaks; etc.
ECONOMIC ACTORS’ BEHAVIOR
 Greediness; Individualism; Hedonism; Criminal Acts; Speculative behavior; etc.
CASE OF INDONESIA
 Zakah Act No. 38/1999  Obligatory Zakah System;
 Banking Act No. 10/1988  Dual Banking System;
 Central Bank Act No. 23/1999  Dual Monetary System;
 Banks are not allowed to open Dinar and Dirham account;
 Central Bank Act No. 23/1999  Rupiah as legal tender;
 IMF Article IV.2  Prohibition to use gold as standard of exchange;
 VAT Act No. 18/2000  0% VAT only for currency, gold bullion, and securities.

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5. RE-DEFINED ISLAMIC ECONOMICS
CONCEPTUAL LEVEL
 Return to PHILOSOPHICAL AND CONCEPTUAL FOUNDATION OF ISLAMIC ECONOMICS:
 Return to METHODOLOGY OF ISLAMIC ECONOMICS:
 Return to MECHANISMS AND INSTRUMENTS OF ISLAMIC ECONOMIC SYSTEM:
OPERATIONAL LEVEL
 Return to Gold Standard;
 Establish obligatory zakat system;
 Create new Islamic financial institutions: no money creation, no mismatch, dedicated purposes;
 Establish Hisbah institutions;
 Central bank should have access to real sector;
 Purification of Shariah based finance; Shariah compliance is not enough;
 Etc.
A. RETURN TO IDEAL

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El-Diwany:
1. Convert monetary aggregate to M0 through RR 100% instrument.
2. Convert token M0 to intrinsic M0 (require huge gold stocks).
3. Relate real sector and monetary sector.
A. Kameel M. Meera (2004):
1. Starts with Dual System:
- Implement gold Dinar in Bilateral/Multilateral Payment Arrangements.
- Implement gold Dinar in Domestic transactions.
Implement gold payment system; Encourage gold savings;
Mint physical gold Dinars, encourage the use of gold in ubudiyah payments: Hajj
savings, zakah, etc.; Create gold Dinar e-Payment System (e-dinar, gold dinar cards)
- Nationalize banks, and gradually convert all monetary aggregates into M0.
- Accumulate gold stock to go back to intrinsic M0.
- Expand MPA, bring in more countries.
2. Establish Global Central Bank with single world currency.
B. RETURN TO GOLD
5. RE-DEFINED ISLAMIC ECONOMICS

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M. Iqbal (2007):
1. When Dinar is not publicly recognized and not a legal tender:
- Encourage savings in gold Dinar.
- Use gold Dinar for medium and long term transactions (savings and loan, investments,
partnership).
- Use gold Dinar for long term financial planning.
- Establish Dinar circle, mint physical gold Dinar.
2. When Dinar is publicly recognized, but still not a legal tender:
- Expand the use of gold Dinar in muamalah transactions.
- Establish e-Payment System (e-Dinar, DinarCard).
- Establish Dinar Mobile Payment System.
3. When Dinar is publicly recognized, and ready to compete with other future currencies.
B. RETURN TO GOLD
5. RE-DEFINED ISLAMIC ECONOMICS

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1. EXCESS MONEY SUPPLY
 Fiat Money  Gold Standard
Stage 1: M2  M1  token M0, through 100% reserve banking.
Stage 2: token M0  intrinsic M0, through gold accumulation.
Possibility: Long term: YES; Medium term: NO; Short term: NO
 Fractional Reserve Banking  Narrow Banking or Free Banking
Possibility: Long term: YES; Medium term: YES / NO; Short term: NO
 Credit Card  Debit Card
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
 Derivatives  ABS or Sukuk
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
C. TRANSITION STAGES
5. RE-DEFINED ISLAMIC ECONOMICS

26. 26
2. INTEREST  PLS
 Increase the share of Islamic Finance
Possibility: Long term: YES; Medium term: YES; Short term: YES
 Monetary Instrument
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
3. SPECULATION
 Prohibition or restriction in all markets
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
4. INTERNATIONAL MONETARY SYSTEM
 Regional (East Asia 14 or OIC 57) Union  Regional Currency  Single Global
Currency . East Asia = ASEAN, China, Japan, Korea, India, Australia and New Zealand
= 21%, EU = 22.3%, North America = 30% of world GDP.
Possibility: Long term: YES; Medium term: NO; Short term: NO
5. RE-DEFINED ISLAMIC ECONOMICS
C. TRANSITION STAGES

27. 27
5. MARKET SYSTEM
 Establish Hisbah Institution in every market to regulate, control, and supervise
the market from all kinds of activities and efforts that try to distort the free
market mechanism.
Possibility: Long term: YES; Medium term: YES; Short term: NO
 Let the market forces of demand and supply determine its natural equilibrium
price.
Possibility: Long term: YES; Medium term: YES; Short term: NO
 No administered price.
Possibility: Long term: YES; Medium term: YES; Short term: NO
5. RE-DEFINED ISLAMIC ECONOMICS
C. TRANSITION STAGES

28. 28
6. BEHAVIOR
 Abstain from wasteful and luxurious living. Conduct modest way of live. Avoid
consumerism and hedonism.
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
 Avoid spending future income for current consumption using various financial
instruments, such as credit card, consumer loans, etc.
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
 Avoid speculation behavior in financial markets or real market.
Possibility: Long term: YES; Medium term: YES; Short term: YES / NO
B. RETURN TO GOLD
5. RE-DEFINED ISLAMIC ECONOMICS

29. Wallahu a’lam Bishawwab
Questions and Answers