Thursday, January 27, 2022

Top Islamic finance expert disagrees with fatwa on cryptocurrency

This comes after an influential Indonesian ulama body declared the lucrative digital currency trade as haram.

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An expert in Islamic finance has disagreed with a fatwa by an influential Indonesian ulama group declaring cryptocurrency as haram or prohibited for Muslims, saying the digital currency is a new form of commodity that can be used for investment purposes.

Mohd Daud Bakar, who chairs the shariah advisory councils of both Bank Negara Malaysia and the Securities Commission (SC), said there is nothing wrong with buying the currency and keeping it as savings or selling it when it fetches a higher value.

He said the position taken last year by the SC’s Shariah Advisory Council, which advises the SC on all matters related to the Islamic capital market, was that crypto trading is shariah-compliant.

Daud said there is still a lack of understanding about cryptocurrency, the first of which was launched about a decade ago.

He said Muslim scholars will have to thoroughly study and understand aspects of the monetary system in light of Islamic laws.

Daud was asked for his take on last month’s ruling by Majlis Ulama Indonesia, declaring Bitcoin and other cryptocurrencies as forbidden, saying there are speculative characteristics in their trade that can be likened to gambling.

“Cryptocurrencies as commodities or digital assets are unlawful for trading because they have elements of uncertainty, wagering and harm,” said Asrorun Niam Sholeh, who heads the council’s fatwa committee. “It’s like a gambling bet.”

But Daud said in the case of cryptocurrency, it is not correct to declare it haram based on the argument that it is speculative.

“From the shariah point of view, a transaction that is haram has elements of riba (interest), gambling and gharar (uncertainty),” he told MalaysiaNow.

He said the uncertainty mentioned by the Indonesian fatwa was not referring to the value of the cryptocurrency, but to the nature and essence of the assets involved.

“When we talk about value, all currencies as well as gold and oil fluctuate. Whether the price change is drastic or moderate, it has no effect in shariah,” he said.

Cryptocurrency, a form of online payment that is outside the jurisdiction of central banks, has taken digital transaction by storm ever since the introduction of Bitcoin, the pioneer cryptocurrency launched in 2009.

Today, there are more than 15,000 such currencies with a total value of more than US$2.3 trillion as of this month, with the total value of Bitcoin at about US$1 trillion.

Daud said cryptocurrency is a new form of asset that cannot be compared to others, adding that many prefer it due to a mistrust in existing currencies, apart from factors such as the ease and speed of use.

Daud, who also sits on the shariah boards of banks and financial institutions in the Middle East and Europe, said the SC had identified at least four digital currencies as shariah-compliant, including Bitcoin, Ethereum and Ripple.

He said while crypto is a commodity, it can be used as a currency and a medium in a business transaction.

He compared it to redeeming rewards points.

“So what is the ruling on redeeming rewards points for goods? It is allowed by shariah.

“The same is true in the context of crypto. It is an abstract tool, just like reward points for buying goods or selling them when their value increases or decreases.”

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