Local Shariah advisors believe ‘halal coin’ is a viable idea, as long as governments collectively agree to it
By DASHVEENJIT KAUR / Pic By BLOOMBERG & issf.isra.my
LEADERS at the Kuala Lumpur Summit 2019 last week called on Muslim nations to strengthen financial and trade cooperation, and to cut their reliance on the US dollar.
Iranian President Dr Hassan Rouhani, Turkish President Recep Tayyip Erdogan and Prime Minister Tun Dr Mahathir Mohamad mooted the idea of a unified currency as one of the ways to confront the economic dominance of the US.
Local Shariah advisors believe “halal coin” is a viable idea, as long as governments collectively agree to it, financial technology entrepreneurs maintain their appetite for it and the Islamic finance ecosystem comes to understand it enough to regulate it.
International Shariah Research Academy (ISRA) for Islamic finance ED Prof Dr Mohamad Akram Laldin said cryptocurrencies have drawn a variety of rulings from scholars with differing views on how these fit with Islamic principles that emphasise real economic activity and forbid outright monetary speculation.
“One or more individual Muslim governments must embrace halal coin before it can become a reality. If more governments came forward to support this idea, I think it would have more potential on the market,” he told The Malaysian Reserve recently.
Mohamad Akram believes the big challenge to roll out a halal cryptocurrency has to do with the capacity of regulators, scholars and standards setting bodies to see and understand what it all means having a unified currency.
“A single currency wouldn’t be subject to exchange rate fluctuations because there would be no competing currencies to exchange against.
“Shariah authorities have not ruled on whether cryptocurrencies are permissible, and while several global bodies recommend standards for Islamic finance, none have the authority to impose them. Many governments seem ambivalent, worried about the potential for instability, but unwilling to lose the chance of benefiting from new technology,” he added.
A number of global jurisdictions have been considering the creation of cryptocurrencies to dodge sanctions by the US to date.
As reported by Cointelegraph in September, authorities in North Korea announced its intention to issue a digital currency with experts believing the initiative is aimed at helping the country bypass sanctions by the US.
Oil producer Venezuela is another example of countries trying to circumvent US sanctions using its own crypto. Launched in February 2018, the Petro became the world’s first national oil-backed cryptocurrency.
“One of the biggest difficulties is that there is so much to talk about, let alone do. Execution is the hurdle and the idea of a unified currency using cryptocurrency is a far-fetched reality as of now” Mohamad Akram said.
Companies are seeking to sway the debate by launching instruments based on physical assets and certified as valid by Islamic advisors.
In Malaysia, HelloGold Sdn Bhd launched an initial offer of its gold-backed cryptocurrency in October, receiving approval from Islamic scholars at Kuala Lumpur-based Amanie Advisors Sdn Bhd.
HelloGold CMO Manuel Ho said its coin is Islamic as transactions occur within a defined period, making them less volatile and addressing the issue of ambiguity of pricing. But the issue of religious permissibility is influential and could determine whether Islamic funds and institutions, which are formally committed to the principles of Islamic law, deal in cryptocurrencies.
The “haram vs halal” crypto debate has been ongoing since bitcoin’s initial surge in popularity.
A check on Google shows Internet searches for the phrase “bitcoin halal” peaked in December 2017, when the leading cryptocurrency’s price hit record highs of around US$20,000 (RM82,800) per coin, while “bitcoin haram” was queried most in January 2018.
Blossom Finance of Indonesia commissioned and released a working paper last year, exploring the Islamic permissibility of bitcoin, cryptocurrency and blockchain.
The research and development of the working paper was led by Mufti Muhammad Abu Bakar — Blossom’s internal Shariah advisor and Shariah compliance officer.
The paper concluded that bitcoin fully meets the definition of Islamic money under certain conditions and was generally permissible under Shariah.
The author pointed to the fact that bitcoin was recognised as a legal currency in Germany and therefore qualified as Islamic money in that country.
“Bitcoin is permissible in principal as it is treated as valuable by market price on global exchanges and it is accepted for payment at a wide variety of merchants. “Moreover, many private individuals accept bitcoin as a medium of exchange in their private transactions,” the study stated.
The publication of the study in April 2018 preceded unprecedented price gains of bitcoin as its value surged by more than US$1,000 in less than an hour following several months of steady decline.
This has led some analysts to speculate that news of bitcoin’s Shariah law compliance may have contributed to the price spike.