A Monetary Caliphate(?)*
An Islamic monetary system all Islamic nations could share.
[I trust that is a picture of the Quran (and not even sure of that spelling). I do beg forgiveness if I mischaracterize Islam in any way.]
According to my very limited understanding of Islam, in it the existence of poverty and charging any interest at all on a loan are both sins. Taxes are acceptable, but should be limited to defense and emergencies.
The economic system that has basically conquered the globe since the fall of Marxism has little in common with those ideals. Marxism could hardly have offered a better economic alternative for Muslims, given that ideology’s anti-religious bent. Besides, private property, a market-based economy, and differences in wealth are not in themselves sinful in Islam, to my knowledge.
So Islamic nations have been forced to compromise Islamic ideals for the sake of material survival, much less well-being. Some of them have been blessed to have vast reserves of oil and natural gas, reducing the need for taxes and public debt to alleviate poverty and fund government. Still, all the money of all the Islamic nations with reserves of oil and gas is not sufficient to eliminate poverty, taxes, and public debt (requiring interest) from all of the lands of Islam.
With this proposed monetary system in place all of those ideals could be realized. Moreover, Islamic nations as a group could become entirely self-sufficient and monetarily independent of the rest of the world. The geopolitical realm of Islam could be a world within the world that would have no unemployment, poverty, taxes (for Muslims and Muslim-owned businesses, anyway), or public debt. It could even, as a closed system, have a ‘natural’ rate of interest that would provide a small increased future value of money without charging interest. If they wanted, Muslim nations could shut themselves off from the rest of the world, only opening their doors to allow nations that were Muslim into their monetary system.
I have developed a monetary paradigm that could allow all that to happen. I have written about its affinity with Islam — again, in my limited understanding — elsewhere. Here I want to focus on it as a multinational monetary system.
First, this system would in no way compromise national sovereignty. It is compatible with any form of government. No nation would have to make any changes in its political system in joining or participating in this system. As a system it would not require any nation to take into account any other nation in any way in its internal politics. All of that seems to me to be especially pertinent, given how religious differences translate into political differences among Islamic nations.
There would be a common currency. It would be administered by a Monetary Agency.
That Agency would have no discretionary authority, but would be a purely administrative body. That is, it would not have any capacity to determine how much currency would be created, or how much would be directed to any nation, etc. It would do nothing but interact with the central banks of the nations in the system to administer the supply of currency for all nations in the system, in accordance with the design of the system.
In this monetary paradigm there would be an income for which any citizen could become eligible. The money for that income would be created as needed by the Monetary Agency and passed along to the central bank of each nation, to be distributed to the people eligible for it. Initially, the amount of the income in each nation would be based on the average income in each nation. Over time, that income would be gradually raised in nations with a lower income until it would be the same in all nations in the system as that of the nation with the highest income when the system had been instituted.
Money could also be created as needed to fund government — from central to local. The amount of money to be provided for that purpose would be based on each nation’s current per capita rate of total government spending when the system were instituted. So the amount of money provided for each nation for funding government would go up (or down) over time with changes in the size of the population — and only that. How the money for government would be distributed within each nation would be a matter for each nation to decide. (Like the income, it could be adjusted over time to equal for all nations the nation with the highest initial rate of spending.)
As noted in all of the referenced articles (above and below), this system would require a limit on hoarding money. How much money could be held by individuals and businesses could be the same for all nations in the system or it could vary from nation to nation. In any case, the amount would be related to income: the higher a person’s or business’s income, the more money the person or business could hold. How much money could be held is far less important than the existence of some fixed limit is: this monetary system would generate a constant flow of a large amount currency into the economy, so some mechanism for returning money (beyond the amount people and businesses could retain) to the central bank of each nation (and from there to the Monetary Agency) would be necessary.
The role of the Monetary Agency would be hugely important in the area of trade among nations in the system. Among them some nations would be net importers and some would be net exporters. The former represents net outflows of money from the nation and the latter net inflows of money. The monetary system, operating through the Monetary Agency, would be rebalanced without any intervention in the system (much less any nation) by the Agency. That is to say, the system would be fully self-regulating, but at the international level it would need the extra-national Monetary Agency to serve as the mechanism through which self-regulation would transpire.
Trade with nations outside the system could be allowed or not. If it were, that might complicate the matter of remitting ‘excess’ money for businesses engaged in such trade. In a closed system, in which such trade were not allowed, collecting such money would be a matter of returning it to its point of origin. (If the system were closed and sufficient essential goods/services for one nation or another could not be obtained within the system, government could serve as the importer.)
It it were a closed system, price inflation would be replaced with stable prices and perhaps even price deflation. In the existing economic system, as John Maynard Keynes famously demonstrated, the latter would be a bad thing: falling prices lead to decreased output, employment, total income, demand, output, etc. in a downward spiral towards a sustainable bottom with high unemployment and much poverty (unto destitution). In this proposed system, with a bulletproof income available for which any citizen could become eligible, such a deflationary spiral could not develop.
It it were a closed system prices could fall over time due to increases in efficiency through technological innovation, etc. Here, though, those falling prices would form a ‘natural’ rate of interest: money not spent in the present would be worth more — could purchase more — in the future. The existence of a natural rate of interest would make charging interest on loans unnecessary.
Other groups of nations — or even all nations — could adopt this monetary system. It seems to me to be particularly interesting for Muslims because of how strongly it aligns with certain ideals of Islam (as I understand them). I hope I have not erred in any way in making that presumption.
*My understanding is that Muslims have been awaiting the advent of a new Caliphate. Here I know I am getting in over my head. That is the reason for the question mark in the title. I do know that the emergence a new Caliphate is a matter of debate among Muslims. Here, then, I do not mean a Caliphate in a religious sense, but a caliphate in the sense of a unitary monetary (but not political) system that could encompass all Islamic nations. I sincerely hope I am not guilty of using it in an unacceptable way.
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More about the monetary paradigm: “Permanent ‘Quantitative Easing’” (a “4 min read” here in Medium with links to articles with more about it).