A Medium of Exchange and a Unit of Account Versus Money

These short Essays atomic number 18 partial fulfillment of Paper IE1001 of Part 1 of sure Moslem Finance Professional (CIFP) draft copy V0. 5 INCEIF Student Name Mustafa Aydemir Student ID 1200279 IE1001 assignment in Islamic economics miserable Essay No 3 by Mustafa Aydemir DRAFT mutant 0. 5. atomic number 101 -1- Bismillahirrahmanirrahim Essay No. (3) specie and Islam A Medium of Exchange and a Unit of Account versus nones as a Commodity E realbody is using silver. Most of us urgency it we carry for it and think how to get more of it. Therefore, it is vital to ask what currency is, where it comes from, and what capital is worth. economic science is an academic discip pedigree that tries to answer those questions. It would be to languish and drawn-out to discuss about cash creation and growth from A-Z but in the future(a) paragraphs the subject matter is elaborated from the conventional as closely as the Islamic worldviews. Money in the conventional soul is a commodity people use in flip-flop for goods and service. Before property was utilize as a medium of exchange, art trade was practised whereby people trade goods and services in exchange for other goods and services.However, barter trade was considered not so practical as weighing, transporting and dividing goods was difficult. It was the lack of transferability and inefficiencies that created the assume for better bureaus of exchange. The impression of bullion was born. There are several(predicate) types of money that developed over time, which should be presented briefly. Commodity money is be as expensive goods, which were apply as an underlying for a currency, much(prenominal) as gold, silver, coffee or even tobacco. The biggest advantage of this kind of currency was its portability and easy storage.Another example of commodity money is the U. S. currency before 1971, which was sanction by gold (Investopia). Fiat money is the paper money soon circulating in our world that is not convertible in whatever other type of money. It is used in our daily life where we demoralize and sell goods and services. Fiat money is basic totallyy not backed by whatever commodity but by a government that guarantees its appraise and creates a perception and faith in people that it is worth it. It is merely needed because gold is IE1001 identification in Islamic Economics Short Essay No 3 by Mustafa Aydemir DRAFT Version 0. . doc -2- rare on this planet. The perception created is, that the stronger the economy, the stronger is the value of its money. It is important to understand, that money is valuable because we want it, but we want it sole(prenominal) because it canful get us a likingd product or service. Money is generated by a kind of an uninterrupted collaboration between physical things, our elusive desire for them, and our theoretical trust in what has value. That is why printing fresh money will not enrich a nation. Another type of money is named credit money.Investopia defines credit money as Any prox fiscal claim against an singular that can be used to buy goods and services. There are many forms of credit money, such as IOUs, bonds and money market work outs. Virtually any form of financial instrument that cannot be repaid immediately is considered credit money. Economists measure money in M1, M2 and M3 defined as follows. M1 money includes all coins and currency that is physically available, travellers checks, demand deposits, checking accounts that is used to produce payments.M2 money is all the money in M1 plus saving accounts, timelinked deposits and non-institutional money-market funds. M3 money is all the money in M2 plus all large time-deposits, lucid assets, institutional money-market funds, and short-term repurchase agreements. M1+M2+M3 together is the total supply of money in an economy, the broad money Money fulfills the three main functions. It is used as a medium of exchange. Furthermore, mone y is a unit of account that is a numerical unit of measurement for transactions, goods and services.IE1001 Assignment in Islamic Economics Short Essay No 3 by Mustafa Aydemir DRAFT Version 0. 5. doc -3- Lastly, money is used to store value that can be retrieved and used again. In Islam money is not a commodity, which makes all the difference. It is not considered as a commodity that should be used for a price, but rather as a medium of exchange in business transactions Money as a commodity concept is prohibited, because it contradicts Islamic principles that does not recognize money as a marionette to make profit. Money is only a medium of exchange, a delegacy of defining the value of a thing it has no value in itself, and therefore should not be allowed to give rise to more money, via unyielding arouse payments, simply by being put in a bank or lent to fewone else. (INCEIF Lecture Notes p. 81). Money used as a commodity would presumably divide the society into the slimy an d the rich, even countries into categories rich and poor economies neglecting their national debt levels. People or nations in need for cash, deficit units, borrow money from people or nations with extra cash, additional units.They are required to pay a fixed enliven payment for their loans. This is riba and is clearly illegal according to Shariah law because it enriches surplus units without any contribution to the real economy. Consequently, people in need for money would take a high risk of becoming even poorer. multiform interest is the big problem that creates money out of thin air. Moreover, the questionable fractional banking system that creates 100. 000 USD out of a 10. 000 USD deposit, 90. 000 USD can be considered fabricated money. 1Title Concept of Money from Islamic Perspective Class Islamic Economics IE1001 Prof Dr. Magda Ismail Abdel Mohsin Institution INCEIF Date 8/16/2006 Of Pages 44 IE1001 Assignment in Islamic Economics Short Essay No 3 by Mustafa Aydemir DRAFT Version 0. 5. doc -4- The rich is getting richer comparatively faster than involvement into the real economy, because money creates more money without work required and Many countries fall into the trap of borrowing money from the supranational Monetary Funds, in particular Muslim states.The weaknesses of money as a commodity, hit those countries with all its evil as borrowed money doubles, multiplies and compounds. Consequently future generations are affected. The current generation is living in exaggerated successfulness on the cost of many future generations. Money is Islam should not be hoarded and kept in the bank savings account. Instead, money is required to reveal within the economy freely to benefit frequently, continuously, proactively and directly the society at large. This leads to the basic principle of interest prohibition and replaces this Riba system with that of Al-Bay.A system that is very different from Riba. The principle paradigm is risk sharing to allow borrowers and lenders to dole out rewards. The process of wealth accumulation and distribution in the economy is bazaar and just and fits the spend (infaq) criteria of Al-Bay suggested by the following poesys. Those who eat Riba (usury) will not stand on the Day of Resurrection drop like the standing of a person beaten by Satan leading him to insanity. That is because they say Al-Bay is only like Riba, whereas Allah has permitted Al-Bay and forbidden Riba.So whosoever receives an admonition from his Lord and stops eating Riba shall not be punished for the past his case is for Allah (to judge) but whoever returns to Riba, such are the dwellers of the Fire they will abide therein. (2-275) The write (2-261) states the incentive of spending in the way of Allah swt by counting the abundant reward and the blessing that an individual get from one single transaction Then the following verse (2-262) puts the conditions for infaq to be accepted, and that is for Infaq not to be follow edIE1001 Assignment in Islamic Economics Short Essay No 3 by Mustafa Aydemir DRAFT Version 0. 5. doc -5- by Riya (show-off) or by harming anyone or harming the society as a whole. Even if the spending is based on charitable purposes mentioned in verse (2-263), no reminding of it and no harm should be resulted from spending process. Indeed, a kind speech and asking for exonerateness would have better impact. So infaq has to be fully for the sake of Allah swt. (2-264). The consequences of Infaq being not for the sake of Allah are serious as there would be neither Baraka nor growth.Verse (2-265) shapes the objective of spending and is to be for the sake of Allah and his reward so the profile of gain and departure in Infaq is different from the ordinary thinking. In conclusion, the definition of money and the way wealth is accumulated and spend draw a fine line in the distinction of both the conventional versus the Islamic economic system. As money is a medium of exchange, savings d oes not yield interest income but instead require business transactions.Al-Bay as the system of exchange that is based on the concept of spending (Infaq) and risk sharing for any single transaction between parties of exchange. It is notable that Tijarah and Bay are of cardinal different meanings. Tijarah is for the individuals that are setting up the business that has the aspect of long term. It becomes clear that lots of efforts have to be spending in education, light and clarification of the consequences by a simple definition of money. 2 2 This meaning can be clarified by looking verse (2-282) And do not be too weary to write it, whether it is weeny or arge, for its specified term. That is more just in the sight of Allah and stronger as evidence and more likely to prevent doubt between you, except when it is a Tijarah which you conduct among yourselves. So we can understand from this verse that Tijarah is among some people that the conduct it among themselves. (61-10) O you wh o have believed, shall I guide you to a Tijarah that will save you from a painful punishment? So, we can sense the longterm involvement in this transaction as Allah swt stated that for in the following 3 verses 11,12 &13. 1 It is that you believe in Allah and His Messenger and strive in the cause of Allah with your wealth and your lives. That is best for you, if you should know. 12 He will forgive for you your sins and admit you to gardens beneath which rivers flow and pleasant dwellings in gardens of perpetual residence. That is the great attainment. 13 And you will obtain another favor that you love supremacy from Allah and an imminent conquest and give good tidings to the believers. IE1001 Assignment in Islamic Economics Short Essay No 3 by Mustafa Aydemir DRAFT Version 0. 5. doc -6-