Paper for InSIST conference 18th March 2008, Putra World Trade Center, Kuala Lumpur Malaysia

Electronic Dinar, An Islamic Heritage for the future of E-commerce

By Mohamed Esfih
Pursuing a PHD in Electronic Payment Systems with Universiti Teknologi Malaysia.

Abstract:

The Dinar is mentioned in the Islamic heritage:

Allah (subhanahu) says in the Qur’an:
And amongst the People of the Book there are those who, if you were to entrust
them with a treasure (qintar), he would return it to you. And amongst them is
he who, if you were to entrust him with a dinar would not return it to you,
unless you kept standing over him. Qur’an (3,75)

Abu Bakr ibn Abi Maryam reported that he heard the Messenger of Allah, may
Allah bless him and grant him peace, say:
“A time is certainly coming over mankind in which there will be nothing
[left] which will be of use save a dinar and a dirham.”
(The Musnad of Imam Ahmad ibn Hanbal)
Source: www.islamicmint.com

The aim of my paper will not be to introduce the Dinar and Dirham’s history or it’s impact on the traditional economy but
to show how this “old concept” of an Islamic Currency is actually the future of E-commerce.

The Bi-metal Islamic currency is a currency perfectly suitable for today and future economies that rely more and more on the Internet.

The Electronic Dinar achieves what traditional currencies and payments systems cannot achieve. And in today WEB 2.0 environment, the Electronic Dinar could spread with an amazing ease and speed.

Introduction:

Recently, a new wave of communication has developed on the Internet, labeled as the “WEB 2.0″ where Blogs, News, Chats, Forums and instant messengers are blowing information from a corner of the planet to an other one in a matter of seconds. Not to mention the billions of websites providing information in almost each field of our lives, 24 hours a day, in all the languages that our world can speak.

If we consider that the once enlightened Muslim civilization more or less missed the “Industrial Age”, how seriously should we take the “Information Age” and the advent of Internet?

How involved are the Muslim scientists and specialists in the development of web technologies? What contribution could the Islamic Civilization bring in today’s digital world?

The first questions was in a way stressed by Tun Dr Mahathir Mohamad back in 2002 when he spoke of the need for Muslims to ”move with the tide into the information age without being drowned in the process,” In an interview about the introduction of the Dinar as an Islamic currency. (Asian Political News,  April 1, 2002)

An answer to the second question could be, as it was in the past and today as well, that Muslim scientists are often at the source of technological progress. As a leading expert in his field, Dr Taher Elgamal invented and patented the SSL and RSA encryption protocols, which are 2 of the most used encryption tools in e-commerce today. This is just one of the examples to show that the Islamic Civilization and it’s individuals are in no way going backwards but on the contrary capable of pushing even the most advanced technologies a step further.

An answer to the third question was actually formulated almost 15 centuries back; The Islamic Dinar. And we will focus on it’s implementation to our modern and electronic world.

The Dinar, in an Electronic format can now express itself as one of the most suitable medium of exchange and commerce in today’s cutting-edge technologies and we will show how this can be achieved.

We will take a “pragmatic” and “practical” approach on how the Electronic Dinar can be used as an effective payment system and a worldwide universally recognized currency. The aim of this paper will not be to explain or define the role of the Islamic Dinar, but will try to show how simple it is to use the Electronic Dinar yet how advanced the Electronic Dinar is in today’s web-based economies.

In order to prove our point we will first summarize the advantages of the Islamic Dinar compared to the “Fiat Money”. We will then highlight how the Islamic Dinar thanks to the Electronic format, can surpass the other payment systems and currencies, and we will stress the conditions necessary to have an efficient Electronic Dinar System. Since a picture sometimes says more than a thousand words, we will show through a graphic how simple but nonetheless efficient, the Electronic Dinar can be used in today’s and tomorrow’s e-business arena.

The Islamic Dinar in the physical format:

The Islamic bi-metallic currency is already un-directly recognized as an international currency since Gold and Silver have their own ISO 4217 International currency codes assigned, respectively XAU for Gold and XAG for Silver. (Rahn, et al.)

Gold is present from the beginning of Human history, from the Pharaohs treasures in Egypt, The Incas & Mayas civilizations and their gold artifacts, to the Roman empire, the Emperors of China, the Sultans of Arabia and the founding fathers of America. And today, with the US dollar going down and the Gold’s price soaring up, more and more people are considering Gold as a more secure asset. (James Turk and John Rubino, 2004).

It is quiet clear that Gold is established as stable and valuable in peoples minds and the Islamic Dinar is operating a comeback into Muslim societies (Umar Vadillo 1996) , but what are the main advantages of the Dinar as a currency and payment system ?

The following is a non exhaustive list of the attributes and advantages that the Gold Dinar has compared to it’s paper based competitor:
- Asset protection against inflation, devaluation and other possible economic risks inherent in fiat currencies
- Standard recognized universally with a track record of 5000 years of usage
- Anonymous
- Usury / Riba free
- Inflation free
- Retains it’s value if physically altered
- Compact
- Real economy
- Zakat / Muamalat

Now the Gold Dinar in it’s physical form also has some disadvantages and inconveniences which are:
- Divisibility
- Convertibility (to paper currencies)
- Inconvenient to use as a medium of exchange
- Inconvenient to use as a standard of deferred payment due to the transport and storage concerns.
- Cost of storage
- Cost of transfer/shipping/delivery
- Limited places where to buy or exchange the Dinar
- Common belief that once we have the Dinar we don’t know how we can use it, exchange it, transfer it etc…
- Has a limited usability in people minds, only for Zakat payment or as Saving

The Islamic Dinar in the Electronic format:

After this first paragraph relating to the advantages and inconveniences of the Dinar in a physical form, we can bring up the properties that the Dinar can extract from it’s Electronic format.

Not only the inconveniences of the physical format are answered, but being Electronic, the Dinar is basically a secured digital monetary information that can travel at the speed of the light from the electronic wallet of the buyers to the digital purse of the seller.

Many studies and articles have been written about Digital Gold, and by nature the Electronic Dinar is a Digital Gold currency and payment system. It has been discussed wether the Digital Gold currencies would  reduce the power of central banking as expressed by Richard W. Rahn and al.

From these profusion of debates and studies about Digital Gold we have identified few common assessments.

What are the special features that the Dinar has in Electronic format:
- Divisibility problem is solved since the Electronic Dinar can be expressed at a 0.0001 precision thus matching any amount in any currency
- Convertibility (to paper currencies) is solved for example with a system of Wakyl as developed by www.e-dinar.com in Malaysia
- Inconvenience of using a gold coin is surpassed by the ease of using a Electronic Dinar E-wallet
- Cost of transfer/shipping/delivery that happens with physical Dinar are drastically reduced for transfers of Electronic Dinar
- Limited places where to buy or exchange the Dinar is no more a problem as a Website and E-wallet system is open 24 hours a day and accessible from the convenience of your office of home computer
- Common belief that once we have the Dinar we don’t know how we can use it, exchange it, transfer it etc… We will see in the coming graphic how the Electronic Dinar can be used
- Instant transfer
- Reduced fees of transactions
- B2B, B2C and C2C transactions
- No repudiation period or charge-back (compared with Credit card payments)

Conditions to respect to have an effective Electronic Dinar System:

- Buy back operation
- Proper authentication and security standards
- Frequent audit of the equivalence between Digital gold and Physical gold
- Minimum fees of transactions
- Display in many currencies to better communicate the value of the Electronic dinar in the local currency of the user
- A 24H client support in the main languages of the world
- Non-reversible transactions, no repudiation (unlike credit card payment that carries a 6 month period of repudiation)
- Instant Transferability, instant confirmation or refusal of transaction
- Digital to Physical exchange at no cost and with no limits (each Electronic Dinar is backed by physical gold dinar)
- Compatibility with other digital currencies and payments systems
- User-friendly, sending or receiving Electronic Dinars should be as easy as using email
- Multiple devices to use Electronic Dinar: Mobile phone, PDA, Laptops etc…

These conditions specified we can now see how an Electronic Dinar System can be designed and used in practical terms.

The Electronic Dinar and its possibilities in terms of usage:

The Electronic Dinar is not the first nor the last Digital Currency and Payment system based on gold, an it is in association with other payments systems and entities that it can extend it’s possibilities in terms of usage, and convenience.

The Electronic Dinar, combined with other E-commerce and Wireless technologies, offers a versatile and powerful payment system and virtual Islamic Currency. Basically the value of the money can be transferred from a form to an other in order to be used in the format that the end-party wants it and all this while any digital value is 100% backed by real gold. For instance, a merchant in the E-souk could sell products online and collect payment via Credit Card, he could then receive his payment on his Electronic Dinar wallet. The next day he could withdraw in cash part of his money via an ATM debit card for instance and use the remaining balance to pay his bills online. In this kind of system, the value of your reserve in Electronic Dinar could be used anytime you need it.
Payments could be sent from an Electronic Dinar account to an other one instantly and at very low transaction fee.

Offline validity is one of the paradox and factor of success of the Electronic money systems (The Economist 2000). Here it is solved through the concept of The Wakyl; which is a physical shop/company who can exchange Electronic Dinar to real gold coin dinar and vice versa or allow the users to sell and buy their real and electronic dinars. This system is already practiced by www.e-dinar.com through Wakyl shops operating in Kelantan Malaysia.

The Mobile Wallet is a actually a prepaid account that can be managed through a mobile GSM Phone. Meaning from the convenience of your mobile phone you can trigger a payment by sending an sms, it is as simple as that (provided you have the technology developped).In the same manner tou could pay your electricity bill or even pay for your Nasi Goreng at the mamak next door since it is real time and non repudiable transactions.

An other convenient tool that could be associated to the Electronic Dinar is a prepaid Debit card that allows the user to retrieve Electronic Dinar on the e-wallet of the card and withdraw it the next minute at the nearest ATM machine or pay online for good and services or pay offline at restaurants and hotels and shops acceptins payments by VISA & Mastercard.

In this concept, the Electronic Dinar can be a full commodity based currency and effective payment system for everyday needs of individuals and businesses; it facilitates all kind of transactions B2B, B2C, C2C, G2C etc…

Through this systems traders will be able to conduct business with different countries without to have to worry about the currency exchange of their local currencies and sometimes the difficult banking regulations hat affects banking transfers between certain countries.

Conclusion:

As we could see in this brief paper, not only the Dinar is a concept of the present and the future, but furthermore, in it’s electronic format it is a tool available and usable today and the only limit not to use it is actually in our minds. Using the electronic Dinar is not subjected to expensive computer hardware or any specific technical knowledge; it only relies on our ability to choose to use it.

Having the choice of using the Dinar as a payment system and Islamic currency is one of the greatest message and contribution of our Umma. By having more and more users, being Muslims or not, the Electronic Dinar could “counter-balance” the weaknesses of other currency systems and promote a real economy instead of an economy based on perpetual credit/debt. (thus avoiding the Riba)

The Electronic gold Dinar could trigger a very interesting “upside-down” of our monetary system. Not as a “death stab”, the Electronic Dinar effect on the actual Currencies and Banking systems can provoke a “Levy Point” that will smoothly place the Banking Institutions as a payment system tool established worldwide and backed by Gold. This smooth mutation of our payment systems, currencies and banking institutions could promote peace and trade in a fair and just world. A French proverb says “Le nerf de la guerre c’est l’argent”, the nerve of a war being the money, addressing the issues about our money systems is a crucial step in solving our problems. All it takes is our adoption of the Islamic Electronic Dinar and couple of mouse clicks. No need to throw stones or fire a single bullet.

References:

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Websites:
www.e-dinar.com
www.e-gold.com
www.goldmoney.com