Currency is not Commodity – Just a Paper

“Currency is not a Commodity” says Dr Mohatir Muhammad, ex prime minister of Malaysia. Really? Is it true? Well this is what West has been telling & selling to the Rest, particularly East! “You are poor Europe, you have nothing to sell. You have lost your money. Accept it so you could start recovering” a bitter message from the person who recovered Malaysia from a bad recession in 1990s.

This is true; this is why the “Rich” countries are under biggest ever debts! USA at $12.8 Trillion (up to $120 Tr if you count bonds, expenses, write-offs, etc), Japan at approx $2.54 Trillion and UK at $1.66 Trillion – the highest ever. And most of the Europe is nearly Bank Corrupt, Greece, Italy, Germany, France, Spain Portugal, Iceland; the list goes on…..

What went wrong with these Richest Nations? It is no secret that the fundamental economic model imposed upon them and on the rest of the world as matter of fact is flawed. This paper based economic system originating from Capitalist ideology is designed to make Richer the Richest and Poorer the poorest. And it is doing it quite efficiently. The big Multinational corporations owned by rich few are growing at phenomenal speed. A UN report sadly states:

• Richest 1% own 40% of World’s wealth
• Poor 50% owns 1% of world’s wealth, and
• 10% adults own 85% of the whole World’s Resources.

No wonder 800 Million people go to bed hungry every night despite abundance of resources. So how this capitalist paper-based economic system does this incredible job of concentrating the wealth into few hands? Here we will focus on two issues which Dr Mohatir’s has addressed:

1-      No Solid Commodity; All Paper Based:

Most of the banking system, stock markets and financial organisations are just a paper work. It has no bearing to the real physical industry they ‘represent’. This is the very reason that the biggest banks & financial institutes in the word (such as Lehman Brother, Northern Rock) just melted away like ice within days only a little while ago leaving the world in a shock. There was nothing whatsoever to back them up. Approximately $4.1 Trillion were lost and about $1.1 Trillion were required to fix the problem (IMF report). And this money belonged to ordinary people who lost the savings of entire life. Yet taxes were increased to further squeeze them in the name of austerity measures.

Dr Mohatir explains; You [Europe] should go back to doing what I call real business – producing goods, providing services, trading – not just moving figures in bank books, which is what you are doing”. How true!

Yes, this is a fact that Europe & USA have little to sell; they make only few tangibles (biggest export is weapons sold to poor nations to fight among themselves). Their economy is based on moving figures in banks’ books which favours the few rich people. This system does not aid even their own ordinary people:

15% (~42 million) people live below official poverty line in USA.

30% (~ 4 million) UK Children live in poverty even though 60% belong to working families.

-Work hard get peanuts; unfortunately most of their income lands in the pockets of share holders as profit and remaining gets chewed up by the huge taxes. For instance, UK Taxes include but not limited to 20% VAT (sales tax), ~£130/house/month council tax, water, gas & electric bills which one has to pay irrespective of the income. Ultimately it impacts the low income families the most.  I have not mentioned the income tax, national insurance tax, and car road tax yet. In nutshell, west is a Rich man’s world.

2-      Pure Paper Currency – Nothing to Back:

World currencies were backed by the amount of gold but not anymore since 1971. So western governments (and many eastern) printed endless amount of bank notes. And top of the list here is USA. They are printing this worthless paper money in abundance and exchanging it happily with real commodity, for instance Oil from Middle East. Dollar is then exchanged among the rest of the nations as “global currency”. And as a result USA gains something real in exchange of paper.

So what’s going on? Dr Mohatir explains; “You can sell coffee – coffee can be ground and made into a cup of coffee. But currency, you cannot grind it and make it into anything. It is just figures in the books of the banks and you can trade with figures in the books of banks only.”

Too much printing of a currency leads to inflation (currency devaluation) and hence living becomes expensive. A $100 note in 1980 is worth $38 only currently. In other words, what you buy in $100 now, could be bought in $38 in 1980.

Mohatir goes on to say “And you can’t remedy that [financial crisis] by printing money. Money is not something you just print. It must be backed by something, either good economy or gold.”

Currency is a means of transferring some value from buyer to seller. If it doesn’t carry any value, how can you transfer it? Can you imagine someone using a bank debit card without having any money in the account, or using a prepaid phone card with zero value on it?

The Solution:

“You have lost money and therefore you are poor.  To recover your wealth you have to work over many years to rebuild your capacities, to produce goods and services to sell to the world, to compete with the eastern countries,” Dr Mohatir advises to west.

But this is where he is wrong. Capitalists don’t have a will to improve the lives of ordinary people in Europe, USA or anywhere in the world. Instead of developing industries in the west, they simply moved their factories to countries where there is cheap labour. The people have to do something by themselves; they have to change the corrupt greed-based capitalist system. The solution lies in the Islamic Economic System which eliminates the root cause of this greed by introducing laws, which ensure that ordinary people earn & live decently. Look at few example:

1-      Islam recommends a currency based on or linked to Gold (or similar precious metal). Hence one can only trade with something of real value. Inflation goes out of the window. Is it viable today? Actually this is only way save your money. The proof is that everyone is running to buy Gold and its price is sky-rocketing.

2-      Islam prohibits selling something that is not real (tangible) and is not possessed (taken control of). This cuts out the brokers (the middle man). Hence the producer earns decent money as well buyer getting better price.

3-      Islam does not have this concept of “Limited Liability”. If you make a loss, you are responsible, not the innocent tax payers (as was the case in banking crisis).

4-      Islam taxes (flat rate 2.5% – Zaka’at) on savings, not on earnings. So ordinary person can enjoy his earnings. This is right opposite to capitalism which taxes earnings.

NOTE: Zakaa’at is not really a tax. It is more of an obligation upon rich to support poor. And it can only be distributed to 8 specific types of people like poors, needy, travellers, huge debtors, to pay ransom for slaves and to zakat collectors as salary, etc.

5-      Wealth in a society is like blood in a body; circulation of wealth in a society is vital to keep it healthy and flourishing. Hence Islam encourages rich people to invest in business. For instance, the surplus wealth will incur 2.5% tax (Zaka’at). But invested money incurs nothing. This creates employment opportunities.

6-      Unused agricultural land is taken away after 3 years and given to others to cultivate on. A simple law that discourages huge land ownership; bye bye to big landlords. Welcome to new small owners and farmers.

7-      Interest is not allowed. This discourages people from hoarding wealth. Instead business is encouraged.

 Above points is just a subset of the complete Islamic Economic system. If implemented in entirety, it ensures that wealth circulated among people bringing prosperity in the society. Better still if the whole Islamic system, especially the Political system is implemented, the world will enjoy an unimaginable prosperity. Actually the world has witnessed this in golden era of Islam, and it will return soon insha Allah!