The document discusses the history and flaws of the current fiat monetary system and proposes Islamic economic solutions. It summarizes that the Federal Reserve system allows private banks to profit from money creation through interest, creating perpetual debt. This system caused the 2008 financial crisis. Islam prohibits interest and advocates financing that is tied to real economic transactions and risk-sharing models. The document proposes short-term solutions like debt relief and complementary currencies, and long-term solutions such as commodity-backed currencies and negative interest in the form of zakat to transition to a just economic system.
1. The current reality of today’s
economic system and Islamic
based Solutions
Yamen Nanne
Zul‐Hijja 1431 H – Dec 2010 C.E.
2. So why discuss this subject?
Sept 2008 Crash
Loss of people’s savings & retirement, devaluation of
property
Layoffs on a massive scale doubled under the current
recession
High unemployment rates
US ~ 10%
CA ~12%
LA ~ 13%
OC ~ 10%
Dr. Mahathir called it “ the mother of all economic
crisis and that it will be with us for a long time”
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3. Many in Muslim community affected
Immigrants of older age
New graduates not finding work
New students pay more for college and
borrow at higher interest rates
Gov’ts cutting back on services and
hiring, while banks are restricting
lending
Bailouts of the financial sector and
failure of the real productive economy
Muslims are vested in the financial
sector and are part of the problem
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6. Why is money creation at interest a bad
thing?
Compounding interest formula
Exponential growth
So that means the longer it takes you
to pay back a loan and the more you
borrow the larger the debt becomes
In essence it is equivalent to
perpetual debt, making us debt slaves
The US treasury has to keep
borrowing in order to keep paying
the interest 6
7. $1 Borrowed at 5% in 1 AD
1000 1,546,318,920,731,950,000,000
1500 60,806,303,788,323,700,000,000,000,000,000
2000 2,391,102,204,613,620,000,000,000,000,000,000,000,000,000
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9. Establishment of F.R.B
So the Gov’t, instead of kicking the Feds
out on the curb, allowed them to coerce
them into establishing the Fractional
Reserve System
What this meant is that Central and
Commercial Banks were no longer
required to ensure that they can only
lend what they actually have in
deposits, rather they could now lend up
to 10 fold what they had as long as 10%
was backed by Gold. 9
11. Fiat Money becoming
Globalized
After WWII – of which many say was
mainly a cause by the German debt that
was incurred during WWI, in which
similar to what we see today in the US,
Germany was no longer able to pay the
interest on its debts, had high
unemployment, and found the only
solutions to its economic woes was to
attack and obtain the wealth of other
nations
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12. Fiat Money becoming
Globalized
The US being the leader of the Allied
Nations called together a private
meeting of international leaders at
Brentwoods New Hampshire, and
established the Brentenwoods
agreement
This agreement allowed the US dollar
to become the global currency for trade
instead of silver / gold, and established
the IMF and World Bank Group
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13. Fiat Money becoming
Globalized
The establishment of these institutions
created hardships for many developing
countries whom were coerced to borrow
money from this pool of international money,
and has now left entire nations to the mercy
of these US based institutions as debt slaves.
African countries pay for debt services twice
as health‐care
More critically this mandated the uS dollar as
the global trading standard and put fiat or
paper (based) currency as the global order of
our time.
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14. Fiat Money becoming
Globalized
If you observe history you will see that while
it was claimed that these institutions were
created to prevent further world wars and
conflict, but however you see that the
controller of these institution, mainly the US
continued to perpetuate extended wars of
aggression on such countries as korea,
vietnam, and continued to borrow itself from
these institutions to pay for the financing of
these wars.
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16. Fiat Money
We come to the regan era where it is now
claimed that the propblem in our economy
was that government was interfering with the
markets too much and that a new capital
accord needs to be established
Mainly the doors were open at that time to
the predatory lending practices we see today,
along with the meaningless paper and
electronic based financial market tools we see
today such as hedge funds, credit default
swaps, and adjustible rate mortgages that
have lead to loss of peoples wealth and
property. 16
18. Islamic Economics & Finance
- beyond economical and financial benefits…
Moral Ethical Social Religious and more….
Social, moral & Governed by
ethical life
Shari’ah Principles
Knowledge Politics &
& learning Governance (Quran & Sunnah)
Ethics & Etiquettes
Commerce & Economy
Law & Justice Hygiene
such guidance
covers all walks of life
Human Rights &
Relations Not confined to
Muslims only, but for
the entire mankind
19. Objectives of Islamic Finance
Equal opportunity for access to wealth
(truly competitive free markets)
Instead of coercion and debt
enslavement, it calls for Justice and
equity
Instead of lending for profit it calls for
Benevolence (zakat)
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20. Elimination of Riba
All religions prohibit riba
The old testament includes the “Law of
Jubilee”
Most legal systems put restrictions on
interest:
Interest ceiling
Ban on compound interest
Why?
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21. What’s wrong with Riba?
Interest grows faster than wealth
Why? Multiples over multiples!
Debt burden destroys the economy
ʺThe natural right to be free of the debts of a previous generation is a
salutary curb on the spirit of war and indebtment, which, since the modern
theory of the perpetuation of debt, has drenched the earth with blood, and
crushed its inhabitants under burdens ever accumulating.ʺ ‐‐Thomas
Jefferson
Impossibility of repayment
Economy is servicing debt
Interest exceeds 70% of exports
African countries pay for debt services twice as
health‐care
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22. Islamic Solution
Finance is tied to real transactions
Finance always serves real economy
Return on financing is paired with
wealth creation
Address debt creation from the start
And eliminate debt i.e. debt relief
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23. Finance in Islam
Finance is embedded in real transactions
Islamic contracts:
sales, leasing, Musharakah (partnership)…
Time value is in line with real value
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24. Lending in Islamic Economy
Lending does not create wealth
Why? Fallacy of composition
Trade does create wealth
Why? Specialization and productivity
Lending thus is a non‐profit activity
What did u just say
Murabaha is not permissible!
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25. So what is the Alternative
Positive-sum Deals (Venture Capital)
One party gains only if the other does
Interests are always aligned
Musharakah (Partnership)
(- , -) (+ , +)
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26. Avoids Profit without
Liability
Liability: responsibility for risk
Profit: return above purchase or
production price
Balance of rights and obligations
Prevents riba from the lender’s side
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27. Solutions offered at the conference
Immediate solutions
Debt Relief
Nationalize central and commercial banks
Return the power of money creation to the public
Complementary currencies
Electronic interest free credit system
Work study programs
Commercial Trade Exchanges
Multilateral Payment Arrangements
Supported by Silver / Gold
Islamic Housing Cooperatives
Ansar housing
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28. Solutions offered at the conference
Global long term solutions
Real Global Currency
Silver / Gold
Lower Income Taxes
Negative Interest Rates
Taxing savings in the form of Zakat
Ensuring that government is highly
transparent and that it implements controls
ensuring that the transition of money from
the financial market to the real market
does not result in a rise in commodity
price.
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