Analysis of commodity reserve currency system from Siyasah Shariyyah perspective

Abstract

Purpose This paper aims to apply the doctrine of siyasah shariyyah to a policy proposal in the area of monetary economics, namely, the Grondona system of conditional currency convertibility, which has been proposed as a practical means of resisting the economic instability caused by the present-day fiat money system. Design/methodology/approach The paper uses library research to review the literature relevant to the Grondona system, and examines the extent to which its operations conform to the principle of siyasah shariyyah, thereby encouraging Maslahah, i.e. the public interest. Findings It has been found that the Grondona system conforms to the philosophy of siyasah shariyyah because it promotes public welfare in a number of ways. First, it is based on the fundamental principle of Prophet Yusuf’s/Joseph (peace be upon him) economic planning, which is accumulating reserves of primary commodities during times of plenty and releasing those reserves of commodities during periods of scarcity. Second, it provides the necessary linkage between the monetary world and the real economy. Third, it could be implemented in parallel with the existing monetary system by using the national currency. Fourth, it would help the least developed countries of the world, which mainly depend on exports of primary commodities (mostly agricultural). Research limitations/implications Because of the chosen research approach, this research study is theoretical in nature. Therefore, researchers are encouraged to evaluate the system from economic perspective based on simulation for the purpose of possible implementation. Practical implications The paper includes important implications for the policymakers in the Organization of Islamic Cooperation countries for the possible implementation of Grondona system. Originality/value This paper fulfils an identified need to apply the philosophy of siyasah shariyyah to the area of monetary economics.