Contemporary Jurisprudence

Professor Hassan Nazari Shahroudi Explores in an Oral Note:

Principles of Economic Jurisprudence/4

It is permissible to receive interest on funds that Islamic countries hold in the banks of non-Islamic countries. For instance, if we sell oil to Venezuela and they deposit the payment into our account in their bank, then, according to their laws, interest accrues on the money for as long as it remains in this account. This same issue applies to transactions with Western and European countries, which are predominantly non-Muslim, and receiving riba (usury) from them is permissible. Even if these non-Islamic banks have branches in an Islamic country, such as Iraq, receiving riba from them is still permissible.

Note

Professor Hassan Nazari Shahroudi has specialized in economic jurisprudence and Islamic economics for many years. Born in 1949 in Shahroud, in addition to teaching various courses on Islamic economics, he has authored numerous books and articles in this field. His book, “Government Expenditure and Revenue in Islamic Economics,” won the first Islamic Economics Award in 2003 and was named Book of the Year by the Hawza (Islamic seminary) in 2004. He has also served for many years as a member of the Jurisprudential Council of the Stock Exchange and the Jurisprudential Council of the Central Bank. A professor of advanced studies (Kharij) in economic jurisprudence at the Qom Seminary, in an oral note, he briefly analyzed two important topics in economic jurisprudence: money creation and usurious loans. The detailed exclusive oral note from the member of the Scientific Council of the Economic Jurisprudence Department at the Research Institute for Contemporary Jurisprudence Studies is presented for your review:

Money Creation and Liquidity

The question is: what is money, and from a jurisprudential perspective, what are its rulings that need to be researched and discussed in the current and future context of the Hawza?

Regarding the nature of money, we must note that previously we considered money as a conventional asset in the form of banknotes and coins. However, today the nature of money has changed, and this money has transformed into credit. Therefore, the discussion of liquidity, in the sense of the volume of banknotes or minted coins, is no longer relevant. Today, it is not money that is at issue, but rather credit. In more technical and economic terms, conventional money has changed to credit money, such that ten percent of the money in society is in the form of banknotes, and ninety percent is monetary credit.

The bank or the government validates money as credit, and this credit is issued by the bank. From a jurisprudential perspective, the discussion is about how much money the government, or a bank under government supervision, can validate as credit.

Now, to what extent can this monetary credit expand? In economics, there is a concept called liquidity creation. What is the meaning of this liquidity creation, which today increases in the form of monetary credit? Therefore, in the first step, we must understand what money creation is.

Fifty percent of the task is to understand money creation from a scientific perspective, and the other fifty percent is to determine, after understanding money creation, to what extent liquidity can expand through credit. Can monetary credit increase without limits, even if society faces issues like inflation, or does this monetary credit have a scientific limit that must be observed in every society to prevent inflation?

The next discussion is that if inflation occurs, what is the jurisprudential ruling regarding this inflation? This is the subsequent discussion and is consequently related to this same discussion of liquidity increase.

From this jurisprudential perspective, if we want to enter this discussion, the first step is to understand the subject scientifically, not merely by reading newspapers and books, especially the discussion of money creation and liquidity in Iran, which is very difficult. In my opinion, someone who has not studied monetary economics cannot undertake this task, just as someone without medical training cannot understand what a microbe is, or what Corona is, and comprehend its nature.

Usurious Loans

In the current situation where commercial relations exist between banks, usurious loans gain twofold importance. To explain: usurious loans are absolutely forbidden for Muslims; therefore, an Islamic bank cannot provide usurious loans. However, receiving riba from a kafir harbi (a non-Muslim in a state of war with Muslims, or from a country considered hostile) is permissible. This issue has been discussed by jurists, including the late Imam [Khomeini] in Tahrir al-Wasilah and the late Ayatollah Araki in Makasib, and they have concluded that receiving riba from a kafir harbi is permissible.

Considering this point, it is permissible to receive interest on funds that Islamic countries hold in the banks of non-Islamic countries. For instance, if we sell oil to Venezuela and they deposit the payment into our account in their bank, then, according to their laws, interest accrues on the money for as long as it remains in this account. This same issue applies to transactions with Western and European countries, which are predominantly non-Muslim, and receiving riba from them is permissible. Even if these non-Islamic banks have branches in an Islamic country, such as Iraq, receiving riba from them is still permissible.

This is an important discussion: in today’s world, can this issue be raised in global societies, and can a distinction be made between riba from non-Muslim and Muslim countries? What is the criterion for being a non-Muslim and a kafir harbi? Is it their government, the owners of the bank, its employees, or something else? These are important discussions that must be addressed in the Hawzas and in economic jurisprudence.