Sharia law gold review

[JulieW]

Under Sharia law, paying or earning interest is viewed as exploitive and is prohibited. Investing in stocks is permitted, as long as the underlying business is not involved in activities viewed by Islam as unethical (such as selling alcohol).

Owning gold investments is a controversial issue, with different interpretations of Sharia law. To clarify the issue, the World Gold Council (WGC) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), which establishes Sharia standards for Islamic finance, are drafting standards for investing in gold to comply with Sharia law.

Public hearings on the proposal will be held later this year in Morocco and Dubai. (In mid-April, Bloomberg quoted a Sharia scholar who is working on the Sharia gold standard as saying that the draft was close to completion.)

Under Sharia law, gold is considered a "Ribawi item." A Ribawi item can be exchanged only by weight and measure, and the transfer of goods must occur immediately. That means that the item cannot be traded for some future value, or for speculation. There are six Ribawi items gold, silver, salt, barley, wheat and dates.

As a result, Muslims under Sharia law are allowed to own gold for example, as jewelry. But there is disagreement in Islam over whether gold can be traded as a commodity or used only as a currency.

As a result, there is no clear policy over investing in companies that are backed by gold, or which hold gold assets (such as ETFs or other vehicles). Gold futures contracts are also avoided because they do not involve an immediate transfer of goods.

A related aspect of Sharia law is the prohibition on charging interest. Sharia prohibits the payment or acceptance of interest rates or fees for loans. To get around this, sukuk bonds Sharia-compliant bonds that generate returns to investors without infringing Islamic law provide a share of revenues on tangible assets.

The proposed Sharia-compliant gold standard under development by the WGC and AAOIFI states that gold investments must be physically backed by gold. Gold futures, which typically are not backed by physical gold, would not comply. However, the draft of the gold standard outlines several approved uses for gold, including investment accounts, derivative contracts, Islamic bonds, and ETFs.

These changes would result in more Sharia-compliant gold products becoming available to Muslim investors. Any additional demand from the global Muslim population, stemming from a definitive interpretation of Sharia law, could have a big impact on gold demand. According to the World Gold Council, the new Sharia gold standard could result in "hundreds of tonnes" of new demand coming from Islamic investors.

http://truewealthpublishing.asia/a-change-in-this-law-could-unleash-huge-demand-for-gold/

 

[BuggedOut]

Under Sharia law, paying or earning interest is viewed as exploitive and is prohibited.

To be honest, that makes more sense to me than fractional reserve banking....

Not sure about the rest of it tho. Very interesting read tho, thanks Julie.

 

[alor]

aren't we under ZIRP of the world

Negative interest, paying a fee so that you money are stored away from you are not violating Sharia Law.
Charging interest lending out money is prohibited.

Dealing in gold as property is good practice.

under Islamic Banking, they do charge finder fees and forms fees etc
but once they are registered company under their respective central bank, most likely they are fractional reserve banking and does not practice gold banking and paper money vs gold.

Just how see it.

 

[Oldsoul]

Under Sharia law, paying or earning interest is viewed as exploitive and is prohibited.

To be honest, that makes more sense to me than fractional reserve banking....

Not sure about the rest of it tho. Very interesting read tho, thanks Julie.

Max Faber would have disagreed but he was a rather narrow minded little turd riding an anti-Catholic ticket in Prussian dominated Germany.

https://en.wikipedia.org/wiki/The_Protestant_Ethic_and_the_Spirit_of_Capitalism

The origins do back further to renaissance Italy in actuality particularly the rise of the Medici banking family. When population and raw materials and energy are available a monetary base that is adequate and responsive is essential. Fractional reserve banking has a lot of merit in a growth scenario where the underlying factors support rapid economic growth and support an overall rise in wealth. Think of it as market responsive Keynesianism that functions to increase money supply when growth conditions exist.

In an expansionary environment that needs greater money supply under the gold standard (which limited money supply) fractional banking provides the economic need or an increased monetary base. This is why for example a gold backed currency would have been a disaster in China from 1990 to 2005.

What happens when growth conditions do not exist or indeed money supply is increased by the state unilaterally to 'stimulate' in a contracting economy.

Well in those cases fractional reserve banking has no function but without interest rates there could be no state control of monetary supply (perhaps a good thing). What is best for one circumstance (a valid and genuine growth scenario) is not necessarily best for a different scenario (limited opportunity for growth due to limited population and raw materials and energy)

The major problem with sharia finance is that is acts to impose the religious decisions of one group over another e.g. no funding for your pork farm or brewery. It is therefore fundamentally and diametrically opposed to a free market. The success of sharia finance recently is not due to it having any underlying efficiencies or reflecting any economic development but rather an influx of capital derived from the fairly arbitrary geographical location of oil reserves.

Usury was actually prohibited in western societies quite widely, and was rapidly discarded as a social prohibition when the theological state became obsolete.

Sharia finance is already meeting this reality. Like wahhabism or Shia fundementalism it will rapidly die or morph into a clone of western financial practise when oil reserves in sharia states deplete because it offers nothing of advantage and its recent rise is due to a capital base derived from a crude single commodity export economy, a model that has always been one that results in poverty. See Ghana and the groundnut.

 

[Big A.D.]

under Islamic Banking, they do charge finder fees and forms fees etc
but once they are registered company under their respective central bank, most likely they are fractional reserve banking and does not practice gold banking and paper money vs gold.

If you look at the GFC period and compare Western financial institutions and Islamic financial institutions, the Islamic ones came out with barely a scratch.

Western finance works on a debt based model, whereas Sharia finance operates on an equity based model. There are still Islamic banks and they still make money for providing services, but it all works on shared risk/shared reward so they tend to be a lot more stable (e.g. like during the GFC).

 

[BuggedOut]

This is a good documentary called "The Ascent of Money" :-

[youtube]http://www.youtube.com/watch?v=fsrtB5lp60s[/youtube]

It covers the history of the Medici family, the illegality of usury (charging interest) in the older times and the birth of "modern banking". It puts into context some of the historical stigma still attached to the Jewish peoples today.

Clearly fractional reserve banking has a role to play when there has been economic repression but it seems to me that it has been followed to its illogical conclusion and now is being abused to the point where it is playing its part in creating another form of economic repression.

Surely there has to be some sort of compromise that can give us the best of both systems.

 

[Oldsoul]

This is an extremely good read, I highly recommend it.


The Medici: Godfathers of the Renaissance by Paul Strathern

 

[Porcello]

Under Sharia law, paying or earning interest is viewed as exploitive and is prohibited.

To be honest, that makes more sense to me than fractional reserve banking....

Not sure about the rest of it tho. Very interesting read tho, thanks Julie.

They just call it "profit rate" instead of interest rate and they are done with it. Almost the same thing.

 

[Oldsoul]

Under Sharia law, paying or earning interest is viewed as exploitive and is prohibited.

To be honest, that makes more sense to me than fractional reserve banking....

Not sure about the rest of it tho. Very interesting read tho, thanks Julie.

They just call it "profit rate" instead of interest rate and they are done with it. Almost the same thing.

That is why the results in sharia investment instruments nearly always mirror the ones in western finance instead of showing much difference.