Only weeks after Pakistan’s former finance minister assured the country that he did not “see any need for further devaluation” of the rupee, the markets proved him wrong. The rupee slipped by 3.8 per cent in the interbank market, or Rs4.40, on Monday to settle at Rs119.8 to a dollar. The decline began with the open of trade in the morning, and only a few hours later all foreign currency dried up in the open market as well. Several dealers who were visited by Dawn, around noon simply said they have no foreign currency to sell, but were ready to buy dollars at rates between Rs119 and 121, depending on location and time.
The huge and constant rise in prices is due to currencies that reduce their values constantly, as they are not based on gold and silver. Like other currencies, the Dollar, the Pound and the Franc, originally, the Rupee was backed by real tangible wealth in the form of a precious metal. In the case of the Dollar, it was gold, in the case of the Rupee, it was silver. This system stabilized the value of the monetary unit both internally within the country, and externally in international trade.
The evidence for this was that the standard prices of gold in 1910 were almost at the same level they were in 1890. Today, there is sufficient gold and silver in the world to support the actual economy. To support transactions such as buying and selling food, clothing, shelter, luxuries, manufacturing machinery and technology and so on.
However, due to capitalist practices, the demand for the creation of money outstripped the supply of gold and silver. The states abandoned the precious metal standard, so that currency became backed only by the authority over the state, allowing more and more notes to be printed, without being backed fully by gold and silver, such that each new note has less value than previously. However, money is used to buy commodities and services, so the money became worthless, if not almost worthless. More of it was needed to buy, so the price of all commodities and services began to rise.
Continuous rises in price are now so integral to the system, that inflation is a widespread measure of how fast they are rising. Thus, the rupee that was once worth over eleven grams of silver before the British occupation, after over two hundred years of the capitalist system is now worth around one nine hundredth (1/900th) of a gram of silver. Before America’s war on Muslims in Afghanistan and Iran, 30.97 Rupees were needed to buy a single US Dollar, and then during the Musharraf-Aziz regime, on Friday 15 August 2008 it rose to 76.9 Rupees – with inflation in Pakistan at its highest ever in 30 years. Then in January 2013 under the Kayani-Zardari regime, over 98 Rupees were required to buy a single US dollar. And it is now over 119 Rupees.
Return to the gold and silver standard for Muslims is eminently practical. The lands of the Muslims in which the Khilafah state is likely to arise contains a lot of gold and silver resources, such as the Sandaik and Reko Diq fields in Pakistan. The Ummah possesses great resources that are direly needed by other countries – such as oil, gas, coal, minerals and agricultural commodities, which can be used to exchange for more gold and silver.
The banks in Muslim Lands have international currency as Forex holdings, such as the Dollar, the Euro and the Sterling which can be used for exchange as well. The Muslim Lands are self-sufficient in basic commodities, so the real economy is stable and resistant to manipulations and speculation, once the parasite economy is abolished.
Islam has mandated that the currency of the state is backed by precious metal wealth, ending the root cause of inflation. RasulAllah (ﷺ) commanded the Muslims to mint Gold Dinars, weighing 4.25g, and Silver Dirhams, weighing 2.975g, as the currency of the state. This is why the Khilafah enjoyed stable prices for over a thousand years.
Today the Khilafah will employ an exchange of commodities, such as copper, and foreign exchange for gold and silver and will be mindful of net outgoings of gold and silver during international trade, though the Muslim World is self-sufficient in most matters. Moreover, re-establishing gold and silver in international trade will end the unfair disadvantage that America has by imposing the dollar on international trade.
As Hizb ut-Tahrir has adopted in its Introduction to the Constitution, Article 166, “The State issues its own independent currency, and it is not permitted for it to be linked to any foreign currency”. In Article 167 it has adopted that “The currency of the State is to be restricted to gold and silver, whether minted or not. No other form of currency for the State is permitted. The State can issue something as a substitute for gold or silver provided that the Bayt al-Mal has the equivalent amount of gold and silver to cover the issued coinage”. In Article 168, it has adopted that “It is permissible to have exchange between the State currency and the currency of other states like the exchange between the State’s own coinages”.