About Asad Zaman

BS Math MIT (1974), Ph.D. Econ Stanford (1978)] has taught at leading universities like Columbia, U. Penn., Johns Hopkins and Cal. Tech. Currently he is Vice Chancellor of Pakistan Institute of Development Economics. His textbook Statistical Foundations of Econometric Techniques (Academic Press, NY, 1996) is widely used in advanced graduate courses. His research on Islamic economics is widely cited, and has been highly influential in shaping the field. His publications in top ranked journals like Annals of Statistics, Journal of Econometrics, Econometric Theory, Journal of Labor Economics, etc. have more than a thousand citations as per Google Scholar.

Allama Iqbal: Message for Youth

From 11 Nov to 16 Nov, I was in Jakarta at the invitation of the Bank of Indonesia to give a plenary talk at the opening session of the 6th Indonesia Sharia Economics Festival (ISEF), designed to promote Islamic Economics as the key to Sustainable Development and Prosperity in Indonesia. Slides for my talk are avaiable from “New Directions for Islamic Economics.” While I was there, I also met my namesake, Mohammad Asad Zaman, named after me by my student Hendri Tanjung, who was doing his Ph.D. under my supervision at the IIIE, IIUI, in Islamabad some 12 years ago. Here is a picture of me and little me:

Hendri Tanjung, who is now the vice rector at Ibne Khaldun university in Bogor, invited me to give a talk at a session on Allama Iqbal at his university. I gave a short 10 minute talk about the Message of Iqbal for the youth: This is the poem on Khitab-be-Jawanan Islam. I started by explaining the importance of Iqbal — as he himself said, he was not a poet, he was trying to convey a message of burning importance by the means of poetry. His message was about reminding the youth of the forgotten glories of the Islamic Civilization, and the steps we need to take to re-create this magnificent heritage.

The poem starts by asking the youth if they even think about the greatness of the Islamic Civilization which has nurtured them with love and affection. This is a recurring theme in Iqbal, that Muslims have been brainwashed into thinking of ourselves as crows, when in fact, we were meant to soar like the eagles (see: The Ways of The Eagles). Short excerpts from the talk are given below:



The poem, and its English translation, is available from:  http://iqbalurdu.blogspot.com/2011/04…
and a video recitation of the poem in Urdu is available from:


Life Lessons 3

Life Lesson 3 of Maria Popova is directly and clearly an Islamic teaching:

Be generous. Be generous with your time and your resources and with giving credit and, especially, with your words. It’s so much easier to be a critic than a celebrator. Always remember there is a human being on the other end of every exchange and behind every cultural artifact being critiqued. To understand and be understood, those are among life’s greatest gifts, and every interaction is an opportunity to exchange them.

The Quran is full of verses exhorting people to spend for the sake of Allah. There are many more verses on this topic than on the famous five pillars of Islam. A few are cited below:
16:90 BEHOLD, God enjoins justice, and the doing of good, and generosity towards [one’s] fellow-men
2:274 Those who (in charity) spend of their goods by night and by day, in secret and in public, have their reward with their Lord: on them shall be no fear, nor shall they grieve.
Muslims are commanded to spend money in excess of our needs for the sake of Allah.
Q2: 219 They ask thee how much they are to spend; Say: “What is beyond your needs.
The generosity of our Prophet Mohammad S.A.W., who is the perfect role
model for us, is well known. He never turned away anyone who sought his help.
After observing how much he gave out of the wealth that accrued to the
Muslims after the conquest of Mecca, Safwan bin Umayyah remarked that “(the
prophet) was as generous as the rain.”  [The above passage is taken from “Crisis in Islamic Economics“, a paper which argues that Western economic theories are based on competition and greed, while Islamic Economics is based on cooperation and generosity.]

Today, because we Muslims have been listening to words like these all our lives, we have become immune to them.  Advice goes into one ear and out the other, without having any effect on our thoughts and behavior. Learning to care for others, to give instead of taking, generosity instead of selfishness, is hard on our Nafs, but it is extremely rewarding. All our lives, we have practiced feeding our Nafs, doing whatever we desire, and feeling frustrated when we cannot get what we want.

There is a new way of life which Islam opens for us — we focus on serving God to the best of our abilities, and let Allah T’aala take care of all our personal problems. (Q6:162) Say: Lo! my worship and my sacrifice and my living and my dying are for Allah, Lord of the Worlds. Give EVERYTHING you have to the service of Allah – hold nothing back, keep nothing for yourself. It is living in this way which develops Tawakkul – trust in Allah. When we see, from personal experience, that Allah T’aala does not fail to provide for us, then we become confident in His guarantees. Also, this way of life is enormously satisfying. Giving to others, for the love of Allah, is the best way to create happiness, while selfishly trying to grab things for ourselves, without concern for others is the formula for unhappiness and loneliness. Economic theory teaches us that rational behavior involves trying to maximize the pleasure the I get from a lifetime of consumption.  I would invite my readers to do an experiment with the OPPOSITE way of living. Forget about your own personal desires. Live only to serve all of mankind, in the best possible way, with your maximum energy and capabilities, for the sake of the love of God. Seek NOTHING for yourself. This seems a bit scary — What will happen to my food and to my basic necessities if I stop worrying about them? Allah T’aala re-assures us that if we seek to serve Him, and make that service our only concern, then He will take care of all of our needs. Experiment – try it for yourself and see. Take small steps to start, in order to build confidence.

Postscript: For previous lessons see, Life Lesson 1 On Unlearning and Life Lesson 2 on Intentions. For a discussion of how Islamic Economics is based on principles of generosity, and how this is radically different from Western Economics, see Radio Islam Interview on Islamic Economics.


Life Lessons 2

The previous lesson from Maria Popova was about being ready to change our minds. The second lesson she offers from her life experiences is:

[2] Do nothing for prestige or status or money or approval alone. As Paul Graham observed, “prestige is like a powerful magnet that warps even your beliefs about what you enjoy. It causes you to work not on what you like, but what you’d like to like.” Those extrinsic motivators are fine and can feel life-affirming in the moment, but they ultimately don’t make it thrilling to get up in the morning and gratifying to go to sleep at night — and, in fact, they can often distract and detract from the things that do offer those deeper rewards.

Clearly, this is well-aligned with Islamic teachings. The first three people to be judged on on the Day of Judgment will be a scholar, a martyr, and a generous wealthy man. All three will have the greatest of deeds, but none will be acceptable because of the lack of sincerity of their intentions. So to deepen the lesson, and make it more profound, the only intention which is acceptable is to do all things purely for the sake of the love of Allah. Note how the Quran (76:8) says that: “And they feed, for the love of Allah, the indigent, the orphan, and the captive”. It is very important to understand that it is not enough to feed the hungry. One should not do this to achieve popularity, to be called a generous person, in order to receive thanks and gratitude, to feel inner pride at wealth, to feel superior, to give in an insulting and humiliating manner, and many other such wrong manners and intentions. Imam Ghazali writes that when we give to others, we should feel that we are the beneficiaries, the one who accepts our money is doing us a great favor, by allowing us to do a good deed. Removing the bad intentions is only one part, the other part is to purify the intentions and make all our deeds directed towards God alone, so that they are done for the sake of the love of Allah.

In fact, Islam places great emphasis on intentions. The first hadeeth of Sahih Bokhari is that the worth of all actions depends on intentions. For a discussion of how making the right intentions for acquiring knowledge is essential, see: PP1: The First Principle of Pedagogy. So Maria Popova has discovered a fragment of the deep truth about the importance of intentions from her life experiences.

To see how this links with the previous teaching, about being ready to change our minds, reflect on the story of Ibraheem AS in his dialog with his nation  (Q26:69). Even though he explains that why it is illogical for them to worship idols, and they accept his logic, they continue to do worship idols and make plans to kill Ibraheem AS for insulting their gods. Why? People are attached to their customs, to their ancients, to their society, to popularity. In fact, Azar, father of Ibraheem AS was a seller of idols. So if the nation stopped worshiping them, he would be out of the job. Similarly, the powerful priests would lose their jobs. So we see that Prestige, Status, Money, Approval of society – these are all FALSE GODS which ask for worship. When we seek these things, we are distracted from the purity of worship of Allah. For the sake of these things, we can reject the truth, and cling to falsehood.

To take it a bit further, note that we would like to appear to know things – so the state of uncertainty – saying “I don’t know” – an admission of ignorance – seems to LOWER our status. This is “surrender” requires us to do – to realize and recognize that Allah T’aala is the only source of all knowledge, and He gives some small portions of this knowledge to whoever He wants to. So to seek knowledge from the treasures of Allah, we must learn complete humility, and become seekers from Allah. Humility is required for Unlearning, while Pride prevents us from Unlearning.

The second barrier to unlearning comes from the discomfort of not knowing things. If I dont know which path is better, how do I know which action to take? I can be paralyzed by lack of knowledge into not doing anything. This is another reason why people prefer to believe that they KNOW things, even when they don’t. At least they can take actions on their (false) knowledge. The solution the Islam offers us to this dilemma is TAWAKKUL – trust in Allah to guide us. When we do not know which action to take, we take our problem to Allah, and we ask Him for guidance, and we trust Him to guide us in the best direction, even though we do not KNOW. The Dua of Istikhara makes this crystal clear. O Allah You Know and I do not Know what is best for me. So our path to guidance, without knowledge, is istikhara and mashwera. Those who follow these recommended actions will be guided to decisions for which they will have no regrets. Those who put their trust in their own false knowledge will often be led to wrong decisions and major regrets.

To conclude, note how people who do not have the light of Islam arrive at truths from their life experiences, but these are only partial and incomplete fragments of the complete and perfect guidance given to us by Allah, Creator of the Heavens and Earth,

Life Lessons 1

On an Islamic Chat group, one of the participants forward a link to 13 Life Lessons collected by Author Maria Popova. One of the greatest differences between an Islamic approach to education, and the Western one we learn in our schools, colleges, and universities, is that Islam teaches us how to live, and how to become a human being, while the West teaches us how to become a valuable human resource, in order to make the most money. Once we understand this, we realize that real knowledge about life comes from life experiences. Our own experiences are limited, so we can benefit greatly, and gain the most valuable knowledge by learning from the experience of others. That is why it is useful to study the thoughts of those who have examined their lives and derived lessons from their own experiences. These lessons give us for free, knowledge which can be acquired over many years by living, experiencing, and thinking. That is why Aristotle said that “A Life Un-Examined is not worth living”.

Maria Popova has indeed collected useful gems from her life experiences in her article on 13 LIfe-Lessons from 13 Years. When LIFE LESSONS are offered outside Islam, I always try to find the SOURCE for them in Islamic teachings – If I CAN find a source, then I accept them and welcome them. The APPLICATION of Islamic teachings to modern life is ALWAYS contextual – ties to time, place, person, historical, cultural, and social context — we have to renew Islam for use in every age. So new insights can always be obtained by looking at how teachings sourced in Islam, and built into hearts of all human beings, have been put into practice in their lives – and in this manner, we can also learn how to apply Islam to our lives, even from those who have not yet recognized their Creator. Our elders have also borrowed freely from the wisdom of other civilizations, in accordance with a Hadeeth to the effect that wisdom is the lost property of the believer.

To see how our life experiences and historical context matter, consider the first teaching of Maria Popova:

1: Allow yourself the uncomfortable luxury of changing your mind. Cultivate that capacity for “negative capability.” We live in a culture where one of the greatest social disgraces is not having an opinion, so we often form our “opinions” based on superficial impressions or the borrowed ideas of others, without investing the time and thought that cultivating true conviction necessitates. We then go around asserting these donned opinions and clinging to them as anchors to our own reality. It’s enormously disorienting to simply say, “I don’t know.” But it’s infinitely more rewarding to understand than to be right — even if that means changing your mind about a topic, an ideology, or, above all, yourself.

There are many useful insights in this advice. Instead of pretending to know, one should admit to lack of knowledge – this humility is the first step for a scholar. Note how (Q6:75-79) Ibraheem AS realized that his guesses about God were wrong, and he prayed that unless my Lord guides me, I will surely go astray. This shows humility, and seeking help attitude that matches the advice of Maria Popova. Now if we look at Ibraheem AS conversation with his people (Q26:69), he is trying to get them to change their minds about worshipping idols, In fact, Allah T’aala is speaking to us in the Quran and trying to get us to change our minds by presenting us with many types of arguments, appealing to our hearts, to our reason, and to many other emotions built into man. But CONTEXTUALLY, the Ibraheem AS explains that they should not worship idols as they can do no good and they can do no harm and they cannot hear you. IN OUR CURRENT historical context, we have to look at our CURRENT IDOLS and find arguments against them.

Basically what Maria Popova says can be re-expressed as the idea that we have to do a lot of UNLEARNING to get to the TRUTH. But we can be more specific – what is it that we must unlearn, and WHY must we be ready to change our minds? It is because our education and historical context is designed to teach us certain falsehoods – A market society is designed to teach us to sell our lives for money, and to think of this as natural. See Three Mega Events which have shaped our thoughts, to see some of the main lines along which we have been programmed by our historical context, and which we must UNLEARN in order to arrive at the TRUTHS. For an in-depth analysis, see Three Mega-Events Which Shape Our Thoughts. These three events have created three major gods – the Lat, Manat, and Uzza, of our times.

In a similar way, all of the lessons of Maria Popova can be enriched by studying them from an Islamic Perspective. For the next lesson, see Life Lessons 2  .See also a presentation on “Unlearning Jahilliya and Re-Learning Islam” on Slideshare.

Preliminaries for an Islamic Education

In attempting to write a textbook on “Real Statistics: An Islamic Approach”, I am faced with the dilemma that there is too much preliminary material to cover. The general differences between an Islamic approach to education and the Western approach are huge, and require extensive and detailed discussion. Furthermore, students have all gone through Western education for many, many years and have absorbed Western mindsets and methodologies. So the process of unlearning what students have been taught to believe is difficult and time-consuming. At the same time, we cannot spend half the course studying principle of education, and start statistics after the mid-term. I have come up with a compromise, where I have written a preliminary Chapter, that would be given to students to read on their own, according to their own time and interest. This is the Chapter ZERO. The first Chapter provides bare minimum essential background information, and the second Chapter actually starts on the statistics. Also, together with the statistics, I plan to cover elements of the Islamic approach, and highlight and emphasize differences with the conventional approach in the process of teaching statistics. I have now created three chapters, which are available at RSIA Chapters. The material to be covered in the preliminary chapter is listed below. This is also too much material, and I hope to cut it down to a more reasonable size in the final version. Suggestions from readers on what to include and what to cut are most welcome.

This preliminary chapter is a discussion of the basic principles of education. All students  have already LEARNED the wrong lessons about education and knowledge, because they have all been trained via a Western educational system. They have learned a theory of knowledge (epistemology) without actually learning any philosophy. They have learnt this by demonstration – what is covered in the courses is (important and useful) knowledge. What is not covered is NOT important. In particular, since Quran and Hadeeth are not mentioned, they have learned (without explicit mention) that our Islamic intellectual tradition is of no value or importance in the modern world.  To counter this false impression, there is a huge amount of preliminary material which needs to be covered. I am condensing this material to the following posts and video lectures, meant as the PRELIMINARY chapter for my planned textbook on RSIA.

1. First Steps Towards Light: How to begin the journey from darkness to light, from ignorance to knowledge. The main message is to take stock of our lives, and to recognize the extremely precious gifts we have been given. Every moment of our lives is worth more than the entire planetful of gold. And yet, we have learned to sell our lives for money, and be happy at this bargain. If we start counting our blessings, we will not be able to do so. Gratitude for what we have been given is the best way to increase our blessings. If we are grateful for the knowledge we have been given, Allah T’aala will guide us towards more.

2. The Ways of the Eagles: The biggest obstacle on our path to knowledge is our lack of confidence in our own abilities to learn, and our lack of trust in Allah, the Creator of all knowledge. Loss of confidence has been created by our defeat, and by deliberate psychological campaigns required for the conquest of minds that is the essence of colonization. To regain our confidence, we have to unlearn the Eurocentric history that we have been taught in our Western education, according to which Europeans have all the glory, while every one else is an ignorant barbarian.

3. The Search for Knowledge: What Islam calls knowledge is very different from what the West calls knowledge.  Accordingly, the way to seek knowledge via an Islamic approach is very different from the methods we have learnt during our Western education. The Western education teaches us to value money and careers over everything else. Islam teaches us how to live our precious and unique lives, in order to achieve the hidden potential for excellence which every human being is born with. Learning how to live, and how to become a human being requires very different type of knowledge from the chemistry, biology, and economics that we have been taught in our Western education.

4. Unlearning Jahilliya and Re-learning Islam: A huge obstacle to our learning process is created by the false lessons that we have learnt from our Western education, which teaches us how to become a human resource, instead of teaching us how to become a human being. These slides list the false lessons that we have been taught, and compare them with the truths of Islam. It is my hope to create a video for these slides later on.

5. Three Mega-Events Which Have Shaped Our Thoughts; The process of colonization has wrapped multiple chains around our minds. Freeing ourselves required recognizing and understanding these thoughts planted in our brains. European colonization of the globe created a defeated mindset, leading us to believe that we are inferior, and Europeans are superior. European rejected God, and created a secular society, in which the most valuable knowledge is that which is objective, same for all, and unrelated to religion. We have absorbed the false idea that objective knowledge contained in Western textbooks is superior to our own intellectual heritage. Finally, living in a capitalist market society teaches us to value money above all things, and to value all things including human lives, by the price of these things on the market. This makes us ignorant about the most precious things about our lives, which cannot be purchased in the marketplace.

6: PP1: The First Principle of Pedagogy: Before we begin our study of statistics, we must ensure that our study is done with the right intentions. The value of our efforts depends upon our intentions. Living in market society, and being trained via a capitalist educational system automatically teaches us to make the wrong intentions. By making intentions to use our knowledge for the benefit of mankind, for the sake of the love of God, we can turn our learning into an act of worship.

Many of the links have full 90m video lectures, so this is actually a substantial amount of material, too much for a preliminary chapter. In order to learn what to keep, and what to cut, I would appreciate very much if you  leave a comment about what you think is the SINGLE most important point that you learned from reading/viewing. Different readers will have different views, but I will get a good idea by collecting responses from many points of view.

Future of Money: Cryptocurrencies and Libra

[bit.do/azfom] Radio Islam Interview: Prof Asad Zaman Tuesday: 15 Oct 2019 – Radio Islam, South Africa.  Q is for Question, and E is for Explanation. 12m Video is followed by a detailed writeup:

Q: What is a crypto-currency? 0:20-1:50

Technical Details are not so important. Roughly speaking, one looks for certain numbers with some complicated properties. These numbers are extremely large and can only be found by running complex programs on large computers, devoting lots of computer power to searching for these numbers. The process is called “mining” because hunting for a number with the required properties is like hunting for gold.  But the real issues lie elsewhere.

Q: How have Bitcoins changed the world? 1:50 – 2:30

Until now, there has been no impact on the global economy. It is just too small to make a difference. But there is a powerful theoretical impact of the demonstration that alternative monetary systems can exist.

Q: Facebook is planning to introduce Libra as a new currency. What is likely impact of this?  2:30 – 2:45

This is very likely to have a major impact. The social media are very powerful, and currencies are built on trust.

Q: What should our stance be on these developments? Are they helpful or harmful? 2:45 – 3:32

This is the key question. To understand this, it is useful to go back to the gold standard. Consider a thought experiment. Suppose we decide to go back to gold standard. What would the impact of this decision be? It should be obvious that those in possession of large quantities of gold would be beneficiaries. Those without gold would be the losers.

E: Libra: Compared with OIL-Based Currency 3:32-4:00

The defining characteristic of currency is that it can be used to purchase anything. All other commodities must be sold for currency and THEN the currency can be used for other purchase. For example, suppose we introduce an OIL-Based currency. Then those with large reserves of oil will be able to purchase the world. CURRENTLY, oil owners must first sell oil for dollars, and THEN use dollars of purchases. This is VERY DIFFERENT – one must understand this difference. Superficially, it seems that whether you have wealth in paper currency form, or in commodity oil form, it is the same wealth. But this is not true.

E: Dominance of Dollars: Bretton Woods 1944 to Nixon Shock 1971 (4:00-5:14)

To understand nature of currency, one must follow the money: Who has existing stocks, and even more important, Who can CREATE money? Current financial system is not understood by most. Bretton-Woods replaced gold standard by Dollar standard with understanding that dollars would be backed by gold. This was called the gold-exchange standard, because in theory, dollars could be exchanged for gold. In fact, currencies are only loosely backed by gold. The Vietnam War caused massive overprinting of dollars. In 1971, Nixon announced that he would no longer redeem dollars for gold. (See previous interview – History of Money)

E: Post-Nixon Shock – Dollar-Based Money 5:14 – 5:45

At that point, it was necessary to renegotiate the basis of international trade. However, this was never done. Many efforts were made, but they were all blocked by powerful USA, which benefits immensely from current system. They get to print dollars, which are now equivalent of gold. Everyone else must export to earn dollars.  The nature of global trade has been enormously affected by this artificial system which puts dollar at the center of global trade. For more details, see “The Petro-Dollar Explained“.

Q: What is the Impact of Dollar-based money on Global Trading System 5:45 to 6:52

It is worth understanding this clearly. In any natural system of global trade, everyone would like to BALANCE imports and exports – buy and sell same value of commodities. But current system: everyone wants to increase exports. WHY?  Exports of one country are imports of another so It is impossible for everyone to increase exports. In this asymmetric system, US can just print dollars and export paper, and buy real goods as imports. Everyone else must increase exports in order to earn dollars, not just to get imports, but also to provide backing for their own currencies. See “International Financial Architecture Part II“.

E: Necessity for a new system of international trade 6:52 – 7:45

Current system gives huge advantage and power to the US – they can print dollars at will, and it is considered equal to gold by the rest of the world. This is obviously unfair to all other countries, who must sell real resources to earn dollars. There is now widespread realization of the problem.  Also, shifts in the balance of power currently taking place make it possible to create alternatives which are not centered on dollars.  See “A Lopsided Monetary System“.

Q: Who will benefit from crypto-currencies ?  7:45 – 8:40

Whoever has the ability to create this currency will derive benefits. This development is not useful for Islamic World. We do not have the computers and the specialized math and computer skills required to generate and create cryptocurrencies. Others who have these skills, computer and computing power, will benefit enormously from being able to create money. Instead of saying yes/no to whatever proposals arise, we have to pro-active; introduce our own proposals for money, based on our own resources.

E: Money and War 8:40 to 9:40

The power to create money is immensely valuable. For one, it creates the power to conduct wars. Modern warfare is very expensive, and being able to finance it by just printing money makes it much easier. When you can finance wars against anyone, you acquire a lot of power on the world stage. For more details, see “The Great Transformation of Economic Theory

Q: The Most Important Question: Who is authorized to CREATE Money? 9:40 to 10:40

For any monetary system (new or old) the most important issue is WHO gets to create money? We discuss all sorts of technical issues, but this main question is rarely asked. This question is of extreme importance even for our ordinary everyday money. Every year, billions of rupees come into existence – WHO creates these, and who benefits from this creation. To understand money, we must understand the answer to this question

E: Concluding Remarks: The Need for Pro-Active Thinking 10:40 to 11:20

We need to do out-of-the-box thinking, like those who created crypto-currencies did. Financial systems are not NATURAL and they are not NEUTRAL. Rather, they are designed (artificially constructed) and They are designed for the benefit of SOMEONE ELSE (not us). So instead of looking at proposals floated by others for their own benefits (like the Facebook Libra), we have to think for ourselves, and design our own systems for fair trade.

Links to Previous Radio Islam Interviews:

Understanding Global Economics and the Islamic Alternative – bit.do/azint

History of Money – bit.do/azhom

History of Money

[bit.do/azhom] Radio Islam, South Africa 14m Interview of Dr. Asad Zaman by Mufti Yusuf Moosagie on Tuesday, 8 Oct 2018, at 9:30am South Africa time and 12:30am Pakistan Time

Q1: What is Money? 0:20 to 2:22

This is a deep and difficult Question. BUT WHY is it so complex?
50 people own more than half planetary wealth. They cannot exploit us WITHOUT our consent. Our consent is creating by feeding us FALSE theories about the nature of money. Today, Ph.D.’s from Harvard learn and propagate false theories which make it impossible for us to understand how the current monetary financial systems are used to exploit us.
The KEY question to ask, to unravel the mystery, is “Who has the power to CREATE Money?” We must ‘follow the money’ to find the answer. For more details see The Battle for the Control of Money.

Q2: How has the nature of money changed and evolved in the 20th Century? 2:22 to 5:18

Pre-WW1: We had the Gold Standard: technically money backed by gold, Actually, most money is unbacked. Important Note (not covered in talk) Fractional reserve means that only about 20% of paper money is backed by gold. There are proposals for 100% reserve banking – that is all paper money is backed on one-to-one basis by gold. This is what general public understands by gold standard, but this has rarely been used in past few centuries. End of Note. WW1 exhausted gold supplies at Central Banks, forcing world OFF the gold standard. Attempts to restore gold standard failed in the Inter-War Era  Bretton Woods Conference in 1944 switched from Gold to Dollar Standard, where dollars would be backed by Gold.  1971: Vietnam War led to massive overprinting of dollars, and the Nixon shock of 1971 removed gold backing from dollars. This has led to the world of floating currencies. For more details, see my post on Monetary Policy from 1914 to 1980.
The point here is that the nature of money has changed radically at least four times over the past century. Learning to protect our collective interests, and to give rulings (fatwa) about money and banking, require a deep understanding of these complexities.

Q3: What is Shadow Banking and how did it emerge in the 1990s?   5:18 – 7:10

Great Depression 1929 caused by speculation by banks led to stringent regulations, which prevented banking crises for 50 years. This caused reductions in wealth share of the extremely wealthy (see The Power of Economic Theory: Graphically Illustrated). They plotted a revolution against these regulations. This counter-revolution was initiated in the Reagan-Thatcher era (1970s), by de-regulating financial institution.(See The Keynesian Revolution and the Monetarist Counter-Revolution). The de-regulation of the Savings and Loan in 1980s almost immediately led to a huge financial crash and subsequent government bailout. However, the financial lobby was well prepared and managed to prevent the public from seeing the connection between de-regulation and financial crises. As the de-regulation process continued, it became possible to create bank-like institutions, which could create money, just like banks, but operate completely outside the realm of rules and regulation imposed on banks. This was called shadow banking – financial institutions which create money, but do not have to follow any rules, unlike real banks.

Q4: What are Financial Derivatives? 7:10 – 10:10

The Glass-Steagall Act 1935 prohibited banks from speculative activities. This was struck down in 1999, and the Commodity Futures Modernization Act in 2000 created legal permission for gambling in “futures” without regulation.  Derivatives are gambles on financial transactions. For example, a bank can bet that the mortgagor will not be able to make his mortgage payments on his loan. By selling this derivative, the bank insures itself against failure – if the mortgage loan does not pay, then the derivative will pay off. But now the bank will happily give loans to unqualified borrowers, because it can make money regardless of whether or not they pay. This is one of the reasons for the Global Financial Crisis. Making gambling legal led to a situation where real trade was around $4 Trillion, while foreign exchange derivatives – gambles on this trade – were around $18 Trillion in 2008. It the ability to create huge amounts of money for speculative gambles that led to the Global Financial Crisis of 2007.

Q5: What will money be like in the future?  10:10 – 12:50

One can speculate on what an ideal monetary system would be like – there is substantial amount of work on this topic. One simple-minded suggestion: go back to gold – this will not work, for reasons similar to why gold failed in the first place. Modern Monetary Theory provides better guidance. But the problem is that fair systems which provide for all will be strongly opposed by the rich and powerful elites running the planet for their personal pockets. (See Fear of Floating and Demise of the Dollar? for more details).

If we think pragmatically, the current system bring HUGE benefits to the US, giving them the ability to print dollars, and create money, without any limits. It is this ability which has allowed them to carry on almost continuous warfare against so many nations, and destroy Iraq, Libya, Syria, and many other countries. The harms of this unjust system are becoming clear to all and the effort is being made to create a Multi-Polar system, with Euro, Renminbi, and other currencies being equal partners with the Dollar. It is here where we have a chance to introduce our own Islamic currency, like an oil-based Dinar, or a labor-based currency.

Questions for Next Time  12:50 to 13:30
This provides a lead into our next topics like bit Bitcoins, Crypto-Currencies, and other innovations coming up, like the Facebook Libra. What is the role and significance of these, and what should our stance be on these developments? Will they help or hurt the Muslim Ummah? We will discuss these in the next session.

POSTSCRIPT: For a deeper and more technical discussion, see Central Bank History (3/5) 1914-1980s. For the previous interview, see Radio Islam Interview: Islamic Economics