The Gold Standard Anchored in Islamic Finance

278 Pages·2014·1.27 MB·English

by  Hossein Askari

THE POLITICAL ECONOMY OF THE MIDDLE EAST
Series Editors
Rory Miller Ashraf Mishrif
Professor of Government Senior Lecturer in Political Economy
Georgetown University Institute of Middle Eastern Studies
School of Foreign Service in Qatar King’s College London
This series explores the nature of Middle Eastern political regimes
and their approaches to economic development. In light of the region’s
distinctive political, social, and economic structures and the dramatic
changes that took place in the wake of the Arab Spring, this series puts
forward a critical body of high-quality, research-based scholarship that
reflects current political and economic transitions across the Middle
East. It offers original research and new insights on the causes and
consequences of the Arab uprisings; economic reforms and liberalization;
political institutions and governance; regional and subregional integration
arrangements; foreign trade and investment; political economy of energy,
water, and food security; finance and Islamic finance; and the politics
of welfare, labor market, and human development. Other themes of
interest include the role of the private sector in economic development,
economic diversification, entrepreneurship, and innovation; state-business
relationships; and the capacity of regimes and public institutions to lead
the development process.
Published by Palgrave Macmillan:
The Gold Standard Anchored in Islamic Finance
By Hossein Askari and Noureddine Krichene
Exporting Peace: EU’s Trade-Peace Dichotomy in Iraq and Iran
1979–2009
By Amir M. Kamel (forthcoming)
Selected Recent Publications
The Stability of Islamic Finance: Creating a Resilient Financial Environment
for a Secure Future, Foreword by Sir Andrew Crockett; Hossein Askari,
Zamir Iqbal, Noureddine Krichene, and Abbas Mirakhor (2010)
Islam and the Path to Human and Economic Development, Foreword by Ali
Allawi; Abbas Mirakhor, and Hossein Askari (2010)
Risk Sharing in Finance: The Islamic Finance Alternative, Hossein Askari,
Zamir Iqbal, Noureddine Krichene, and Abbas Mirakhor (2011)
Conflicts and Wars: Their Fallout and Prevention, Foreword by George
Akerlof; Hossein Askari (2012)
Islamic Capital Markets: Theory and Practice, Noureddine Krichene
(2013)
Collaborative Colonialism: The Political Economy of Oil in the Persian
Gulf, Foreword by Robert Looney; Hossein Askari (2013)
The Gold Standard Anchored in

Islamic Finance
Hossein Askari and Noureddine Krichene
THE GOLD STANDARD ANCHORED IN ISLAMIC FINANCE
Copyright © Hossein Askari and Noureddine Krichene, 2014.
Softcover reprint of the hardcover 1st edition 2014
All rights reserved.
First published in 2014 by
PALGRAVE MACMILLAN®
in the United States— a division of St. Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
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this is by Palgrave Macmillan, a division of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills,
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ISBN: 978–1–137–48582–3
Library of Congress Cataloging-in-Publication Data
Askari, Hossein.
The gold standard anchored in Islamic finance / Hossein Askari,
Noureddine Krichene.
pages cm. — (The political economy of the Middle East)
ISBN 978–1–137–48582–3 (hardback) —
ISBN 1–137–48582–5 (hardback)
1. Finance—Islamic countries. 2. Gold standard—Islamic countries.
3. Financial crises—Islamic countries. I. Krichene, Noureddine. II. Title.
HG187.4.A86 2014
332.4(cid:25)222091767—dc23 2014026556
A catalogue record of the book is available from the British Library.
Design by Newgen Knowledge Works (P) Ltd., Chennai, India.
First edition: December 2014
10 9 8 7 6 5 4 3 2 1
ISBN 978-1-349-50382-7 ISBN 978-1-137-48583-0 (eBook)
DOI 10.1057/9781137485830
To all those who have suffered from financial crises

Contents

List of Figures and Tables ix
Preface xi
Acknowledgments xiii
1 Introduction 1
2 The Shortcomings of the Present Payments System 27
3 The Horrors of Hyperinflations 61
4 Origins of Gold as Money 91
5 The Gold Standard 109
6 Gold and the International Payments System 125
7 Bimetallism and the Gold-Exchange Standard 139
8 Recurrence of Financial Crises and Suspensions of
Gold Payments 163
9 Strategies for Reintroducing the Gold Standard 181
10 Islamic Money and Capital Markets 203
11 The Gold Standard in Islamic Finance 233
Notes 245
Bibliography 259
Index 265

Figures and Tables

Figures
2.1 The US domestic debt-GDP ratio, 1956–2011 38
2.2 Money market interest rates, 2000–2011 40
2.3 Instability of exchange rates under paper money, 1960–2011 41
2.4 The dollar-euro exchange rates, 2000–2011 41
2.5 US consumer price inflation 1960–2011 43
2.6 US consumer price index (CPI) and real GDP
index, 1865–1915 43
2.7 Gold prices (US$/ounce), 1960–2011 44
2.8 Crude oil prices (US$/barrel), 1960–2011 44
2.9 F ood, agricultural raw materials, and metals price
indices, 1960–2011 45
2.10 S&P 500 index, 1950–2011 45
2.11 International reserves (in billions of US$), 1960–2011 47
2.12 US trade balance (in % of GDP), 1960–2011 48
2.13 US investment and saving gap (in % of GDP), 1960–2011 49
2.14 US real GDP growth and unemployment rates (in %),
1960–2011 50
2.15 Structural changes in US economy, 1960–2011 51
2.16 Annual S&P 500 index, 1871–1932 53
2.17 Annual S&P 500 index, 1990–2014 53
2.18 US unemployment rate in percent and unskilled labor wage in
dollars, 1900–1945 55
3.1 Fed Credit, 2002–2014, in US$ trillion 82
3.2 Monthly S&P 500 index 2009–2014 83
8.1 F ractional banking: the credit triangle (units in
ounces of gold) 168
8.2 Simple barter 170
8.3 Simple middleman 170
8.4 Banking debt as currency 171