Money Creation in Islamic Countries

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mruffra's picture
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Money Creation in Islamic Countries

Does anyone know how money is created in Islamic countries?

I doubt they have fractional reserve lending, since collecting interest is prohibited in the Koran.  Does the government just spend it into existence?

I did a little web research on Islamic banking, but couldn't find anything that explained money creation.  If you can point me to some good resources, I would appreciate it.


rkopf's picture
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Re: Money Creation in Islamic Countries

I believe ALL major religions prohibited taking interest, but the european churches didnt insist on their own laws in the past. I think in islamic countries, taking interest is still forbidden, so im also interested in how business deals with that.

pleaseremoveme's picture
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Re: Money Creation in Islamic Countries

Islamic countries used to be controlled by Europe just a century ago. They inherited FRB from us, and although some of them strive for full reserve banking, they have not succeeded in making it work yet. Second, interest was forbidden during the second halve of the middle ages here in Europe, so don't say that churches in the past didn't insist on their laws. But see wikipedia for more information.


I'm no exppert on Islamic banking, but some tactics to keep banking `halal':

- Instead of loaning money to entrepreneurs, the bank buy shares in their business. The other way around: instead of saving money, people buy shares in the banks. Without credit for interest, share prices are more stable.

- If you want the house, the bank agrees to buy is for you, and to allows you to buy it back for a higher price, but in installments.

Kurosawa's picture
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Re: Money Creation in Islamic Countries

Interesting thread, I would like more in depth information if it can be provided.

khalid.altayaran's picture
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I'm new here and hope to add something useful in this old thread.

pleaseremoveme gave good explanations.

I live in an Islamic country and know sort of what;s going on here.

Islamic countries up the the Othoman Khalifat were using Gold and Silver as currency. The problems all started after the collapse of the Khalifat and WWI and WWII... where ALL islamic lands go devided to today's knows borders. Control of mant aspects of life was totally European/American/British. When these colonzing (Destrcuting occupation) decided to exit they left behind loyal governaments [who betraded their own people to gain power].

These corrupt governamets automatically instated so called 'Central Banking' [the Rothchilds/Rockerfellers way]. Thus the dept based enslavement used in the west continued in Islamic countries and all reporting to BIS in Switzerland.....

The topic of Islamic Finance today is still young and has just started in less than 30 years or so by Malaysia/Bahrain/Eygpt and UAE. Islamic scholors are trying hard to cop with todays modern financial tools and products..... But I'm not sure if the scholoars are aware or not that we are orginially in the WRONG economic system the Dept based/Infinite Growth/populaiton enslavement models.

I'm for one I can say I'm not a scholar but all Islamic texts will for sure agree that the current Central Banking/Fed style printing presses is prohibited in Islam and Sound money including Gold and Silver should be used as curreny. Also, in my current readings from Dr. Thmoas Greco who specializes in Community currencies/parallel currencies and trade exchanges I'm sure that Islam will encourage such exchanges and barter trade as Islam has the benefit of Society at large at a hight proirity. {Islamic Sharia came to protect: Life/Religion/Mind/Wealth/Honor/Dignity}

Such mechnasims for Wealth protection and sharing are by far one of the clearest examples of Life prosperity during the past Islamic khalifats and specially dueing the days of our prophet Mohammad pieace be upon him.



Thanks for reading and Regards,,,,,

Jager06's picture
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That explains why NATO felt obliged to invade Libya after Ghaddafi decided to purchase 380 tons of gold and institute a gold backed reserve currency.

I have also seen where an item such as a pebble is purchased by an Islamic bank from someone who needed to buy a car. The price of the pebble was then raised and it was resold on a payment plan back to the person seeking the loan.

Of course, non muslims need not apply, no lending is allowed to them.

While a novel way of disregarding the "law of usury" it is still debt slavery, and completely disregards the intent of the law. 

Sharia Law is Islam, while educational, the continuation of these types of discussions will trigger the religious side of the issues and get this thread shut down.

Best Wishes,


Thomas Hedin's picture
Thomas Hedin
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With Libya maybe being the exception, the Islamic countries have all of the money created as interest bearing debt.  Its true that interest is forbidden so though simple deception on the mind the bankers in those countries do not call it interest, they call it 'profit sharing' where you pay for the use of the money up front and share your profits before you can ever begin to pay principle.


Its interest just called a different name.

tictac1's picture
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"While a novel way of

"While a novel way of disregarding the "law of usury" it is still debt slavery, and completely disregards the intent of the law."

Not exactly.  A primary difference is that under our loan laws, if I don't make a payment on a car, I get charged late fees, and the interest continues to accrue, possibly ever-increasing my debt.  Under Islamic banking, there are no late fees (encouraging banks to make better choices about lending) and the total amount owed never exceeds the pre-arranged amount.  This is significant.

Also, there is absolutely no precident in American banking for "qard hassan", or a benevolent loan.  This is a truly interest-free loan, but the borrower may (at their sole discretion) pay the bank token amount over the loan, so long as it is not promised.

Another significant difference is the prohibition of loaning money for immoral purposes.

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