CAN ISLAMIC ECONOMY CONTROLS INFLATION?

What is inflation?

At its most basic level, inflation is simply a rise in prices. Over time, as the cost of goods and services increase, the value of a currency is going to go down because we will not be able to purchase as much with the same amount of currency as we would last month or last year.

How aspects of Islamic economy can control inflation :

One : Hard currency is tied to gold or silver standard

The Islamic system requires currency / medium of exchange to be based on the gold and silver standard which have an intrinsic value. Notes can be used to represent the precious metals instead of carrying gold and silver around, but they must be backed up by them. Due to the intrinsic value in the precious metals stability is achieved and devaluation and inflation controlled.

In Islam, currency is treated as a medium of exchange/store of value and should not be treated similar to commodity (i.e., that can be traded at anyone’s whims).

Two : No artificial money

The Islamic system does not only forbid riba, but also does not allow us to loan what we do not own or have. Banks cannot produce money at any time, as and when they like.

Three : No hoarding to manipulate supply and demand

The Islamic system abhors hoarding and the artificial manipulation of supply and demand.

Four : Ownership of natural resources

Islam’s solution is based on its view of ownership and permissibility of generating profits from natural resources. Islam is the only system that defines 3 types of ownership; individual, public and state property. The Prophet SAW in his Hadith has included natural resources that combust (oil field, gas field, coal mine, etc) as public property as well as other natural resources. Public property can not be transferred to the state or private sector, but remains the property of the public (Muslim Ummah) and is run by the Islamic state for their benefit on a no profit, no tax basis. Any profit generated by selling surplus oil to friendly non-muslim countries must be spent on the Ummah.

Hence the Islamic view on natural resources would be a pivotal factor in reducing prices and controlling inflation

Fifth : Revival of dead land

The Prophet SAW informed us that a Muslim who revives a dead Khiraji land, which was never cultivated since Muslims opened it, would own the neck as well as its produce. The Prophet SAW also informed us any Muslim or Zimmi (non-Muslim citizen of the Islamic state) who revives a dead Khiraji land on which Khiraj was applied in the past would own the produce, whilst the neck would remain with the State.

The concept being whoever revives a dead land can benefit from it. This presents a great incentive for poor farm workers and others to take advantage of this Islamic rule and revive dead land and the whole state would benefit. Poverty would be reduced, employment would increase and so would production. Increased production leads to increased supply and therefore cheaper prices and lower inflation.

Based on the 5 pertinent points above, we could conclude that if the Muslim nations of the world could work together to control the global inflation and thus, save the humankind from starvation and work towards better living standards. It is very sad indeed to see that the rich are getting richer and the poor are getting poorer and the gap between these two classes is widening in each passing day…when will it end? Or will it ever end…Only God Knows Best (wallahualam).