Sponsors Link

5 Functions of Money in Islam and Economic Perspective

Sponsors Link

Money is a tool for exchanging goods or services. Did you know that in the world of the trade before money was introduced into society as a means of exchanging goods or services, they still used the barter system? Barter is a transaction carried out by exchanging between one party and the other. Like, for example, if a vegetable farmer wants fish, he will look for fishermen to exchange vegetables for fish.


Vice versa, a fisherman will also exchange the fish for the farmer’s vegetables. In the second barter, the parties involved in the transaction must have a clear contract so that they are mutually beneficial or not detrimental to either party. Therefore, we must understand how the basis of Islamic law is about, the right of buying and selling and how buying and selling are prohibited in Islam.

Money is a medium of exchange for goods or services (medium of exchange). As confirmed by Imam Al Ghazali that Allah has created dinars and dirhams as judges to determine or measure a price so that the property can be measured by both (dinars and dirhams). Therefore as a good Muslim, we should use the money in accordance with the nature or provisions of Islamic economics such as:

  • Make sure that money is used properly and in accordance with Islamic economic law in Islam will make money more blessing.
  • Enabling money with the correct Islamic rules and avoiding usury because following these rules is included in one way of success according to Islam.
  • In carrying out a buying and selling transaction activity, we also need to know what kinds of usury are because there are so many dangers of usury for our lives.
  • We must know what the rules are because this is one way to succeed in the afterlife according to Islam.
  • And if you get more than the buying and selling fortune, you must be able to carry out the fifth pillar of Islam, namely tithe on those who are entitled to receive the zakat.

Money during the Caliphate

Money is a medium of exchange that we currently use to obtain goods or services. But have you ever thought, when is currency known in the world of trade? If we look at the history of economics in Islam, the currency is a medium of exchange that has been known since the beginning of the Caliphate.

During the Caliph Umar R.A and Usman R.A for example, the printed currency followed the Persian dirham design. During the reign of Umar R.A, there appeared a proposal to make currency from the skin of a camel or sheep, but in the end, this proposal was not realized because of differences of opinion from the friends. But during the reign of Ali R.A, they began printing currencies with new designs even though the currency was limited in circulation.

Whereas in the Muawiah period, the currency was printed with the design of the governor’s image and the sword as Persian had. During Muawiah, the Iraqi governor named Ziad also printed a currency design using the name of the caliph on the Iraqi dirham. And until now, each country still uses the image and name of the character for that currency.

Sponsors Link

Money Reformation in the Times of Abdul Malik (76 Hijri) and Ibn Faqih (289 Hijri)

In the time of Abdul Malik, the dinars and dirhams had a stable exchange rate of 1:10 and this happened in a long period of time. At that time, the value of gold and silver had a ratio of 1: 7 and if accumulated into a 20-carat dinar would be equivalent to ten 14 carat dinars. During Abdul Malik’s time, he had carried out monetary reforms by changing the dirham to 15 carats, while the weight of the goldfish on the dinar was reduced from 4.55 to 4.25 grams.

Whereas in Ibn Faqih’s time, dirhams had a strong value with a ratio of 1:17 and finally stabilized at 1:15. After Abdul Malik carried out monetary reforms, the comparison of the value of one dinar was 4.25 grams while one dirham was 3.98 grams, and for one uqiyya it was 40 dirhams, one liter 12 uqiyya equaled 90 mistqal, one mistqal 22 carats, one qist 8 liters which will be equivalent to half sa’.

And do you know if America also uses a comparison rate of 1:15 in 1792 – 1834 AD? However, America has a different decision with Abdul Malik who carried out monetary reforms. America prefers to maintain its exchange rate even though in Europe the value of gold is 1: 15.5 to 1: 16.6. At this time, the old currency flowed to America while the gold currency came out of America.

Money in Years (1519-1579 AD) Elizabeth (1558-1603) with Sir Thomas Gresham

During this time, Sir Thomas Gresham served as one of Elizabeth’s advisers when he ascended to the throne in the mid-sixteenth century. At this time, there have been many cases of coin forgery which in the book of Islamic jurisprudence is called maghsyusy. With the occurrence of the case, Elizabeth has a proposal to design a new coin with gold. And even though the design or material changed by the queen will still maintain the face value or value of money so that it can still maintain the trade sector at that time.

After the money printed using the gold material is circulated, the people even prefer to use old money. This happens because people prefer to withdraw, and process the gold coins as jewelry rather than making them as a medium of exchange. Therefore Gresham has the theory of “bad money drives out good money”.

Money During Ibn Taymiyyah (1263-1328)

Ibn Taimiyah is an Islamic cleric who lived during the Mamluk administration. In this period, it has had the same events like the time of Queen Elizabeth. At this time there are 3 types of currencies, namely, dinar (gold), fulus (copper), dirham (silver).

At this time the money was circulating widely, the circulation of the money was quite limited, and the circulation of the money was uncertain. This incident was formulated by Ibn Taimiyah before Gresham’s theory emerged. In the formulation of Ibn Taimiyah, he stated that low-quality money would be able to flow in easily compared to money with high quality (gold/dinar/dirham).

Further reading:

Sponsors Link

Money in the Book of Ihya Ulumuddin

In his book Ihya Ulumuddin, Imam Al Ghazali said that money is a mirror which means it does not have color provisions but can only describe it. Likewise, money has no price but can describe all prices.

Money is not a commodity and therefore, money cannot be traded at a fixed price. In his book, Imam Al Ghazali said that if we trade and buy money, it means equal to stopping the function of the money. And if money is traded, then only a little money can be used as money in its essence. Money in the Islamic economy only has 2 functions, namely:

  1. The medium of exchange which means that money is a medium of exchange to get an item, so there is no need to exchange goods with other goods. In addition, the medium of exchange serves to minimize the problem of barter.
  2. Unit of account is money that functions to determine the value of an item that will be traded and to measure a value of wealth.

Purpose of Use of Money

In the economic goals of Islam money is a medium of exchange that is used to obtain goods or services. In carrying out a sale and purchase, money is a tool of economic transactions in Islam that has several benefits or uses including:

  • The First Use of Money

In Islam money has a clear use, namely as a medium of exchange or medium of exchange. Money is a medium of exchange that can be used to obtain an item or service; therefore money cannot be used as a commodity.

  • The Second Use of Money

The second use of money in Islam is as a unit of account. In his book, Imam Al Ghazali said if we do an economy or a barter transaction, there is also a need for a unit of account or a provision (agreement in the contract).

  • The Third Use of Money

Money can be used as a store of value. This use will be present in conventional theory but according to Imam Al Ghazali, the store of value is not allowed in Islam. This is not permitted because it is considered the same as stopping the function of the money and is considered as buying and selling prohibited in Islam.

The Concept of Utility Money in the Islamic View

In Islam, money is a medium of exchange and unit of account, and these two things have been defined as functions of money in Islam. Therefore, it is very clear if the money functioned as a means of exchanging goods or services that have a clear contract in a transaction which is also regulated in the science of fiqh muamalah buying and selling in Islam.

Islam does not teach money as two concurrent functions or double functions, so it is clear that in Islam, the money will not be included in the utility function.

Sponsors Link
, ,

Oleh :
Kategori : Economy, Islamic Law