While Islamic scholars have long wrestled with the question of whether cryptocurrency is halal, what if it’s really fiat that isn’t permissible?
Islam has strict rules around finance, and it historically defines currency as commodities with intrinsic value — gold, silver, or salt, among others. Waseem Mamlouk, from the DeFi platform Nimbus, argues that government-issued fiat currencies do not have any intrinsic value and may be incompatible with a careful interpretation of Sharia law. This would pose a problem for the burgeoning Islamic finance industry, which aims to produce financial returns in compliance with religious law.
“Mined cryptocurrencies have intrinsic value because it costs a certain amount to produce them — but fiat currencies that are printed digitally onto a balance sheet have no intrinsic value whatsoever.”
Mamlouk sees cryptocurrencies as a viable alternative. As the vice president of Capital Markets for Nimbus, Mamlouk is working to have portions of the business certified as Sharia-compliant in order to dip into the growing pool of investors who want their investments to fit with their religious beliefs. While this would certainly bring profits, Mamlouk also sees Islamic finance as a way to promote responsible long-term investing.
Mamlouk’s contention that fiat money has no intrinsic value is certainly a controversial one and would carry huge ramifications for the Islamic finance industry if his evaluation took on a wider acceptance. In effect, he is saying that fiat is not halal. He is not the first person to question fiat’s potential incompatibility with Islamic finance, as there has long been an academic discussion regarding a desire to return to a gold standard — like in the times of classical Byzantium.
“So, immediately, if we’re going to talk about someone doing dollar-denominated Sharia-compliant funds, it doesn’t really make sense from the get-go. However, with mined crypto’s, it actually does make sense.”
It was an honour to participate in panel discussions on Challenger Banks & FinTech Disruptions at The 1st International Islamic Fintech Summit 2019 hosted by @ashurst London. Great ideas/opportunities for FinTech and Crypto in Islamic Finance. pic.twitter.com/oJKi4eKaSo
— Dr Kingsley Udofa (@DrKUdofa) February 15, 2019
Mamlouk believes that cryptocurrencies hold the key to a better implementation of Islamic banking. In short, this refers to financial and banking practices in line with Islamic religious teachings. Of these religious teachings, the central one is a prohibition on riba, generally equated to usury — or charging interest.
With interest being a major part of the current DeFi landscape, Islamic DeFi, which must not involve interest, will require custom solutions. In the Islamic banking industry, Mamlouk explains that bank fees sometimes replace earnings that would otherwise come from interest, but he is not a fan.
“Banks like to play on people with different words and terms. ‘We’re going to charge you fees but we’re not going to charge you interest’ — we know what that is.”
Islamic economics includes a broad idea that money must be earned through fair and legitimate work instead of unfair exploitation, often compared to the labor theory of value. For that same reason, the money received for work must have real and intrinsic value.
Though there are no exact numbers, The Economist has estimated that Islamic Finance accounts for $2 trillion a year and is poised to “reach $3.69 trillion in 2024” according to Gulf Business. Considering that the global population of Muslims is “expected to increase by 70% – from 1.8 billion in 2015 to nearly 3 billion in 2060” according to Pew Research Center, financial services geared towards Islamic sensibilities are certain to continue attracting capital.
Though Islamic finance has been around much longer, it is an unlikely brother of the cryptocurrency industry. They are both…