THE 20TH AL BARAKA SYMPOSIUM FOR ISLAMIC ECONOMIES（THE SHERATON IMPERIAL HOTEL, KUALA LUMPUR／2001年６月25日）
It is a great pleasure for me to be invited to
officiate the 20th Al Baraka Symposium for Islamic
Economy this morning. I am informed that this is the
first time this symposium is held outside of the Middle
East. We are indeed honoured that Kuala Lumpur has been
chosen as the venue for this year’s symposium. The
significant number of eminent speakers and Syariah
scholars that are gathered here will, I am sure,
produce stimulating and constructive deliberations.
Considering your contributions to the world of Islamic
banking and finance, I’m confident that the symposium
will achieve its noble objectives.
2. During the height of the great Islamic civilisation,
trade was among the most important activity in wealth
creation. Today in a world that is being rapidly
globalised, trade has become even more important,
facilitated by the advancements in information and
communication technology and the greater capacity and
speed of transportation. Whereas in the past trade could
be carried out through the barter of goods, today the
volume is such that barter is not practical any more. The
goods and the services are paid for in the currencies of
3. But the currencies of the different countries are not
of equal value. To make payments the relative values of
the currencies, i.e. the exchange rates must be
determined. This is not so easily ascertained because the
cost of living of different countries differ greatly and
so do the inflation rates. The value in terms of
purchasing power of a currency even within the country is
therefore continuously changing, some more rapidly than
others. This must mean that the exchange rates between
the different countries must differ at different times.
4. All these make trading difficult as between the time
the goods are dispatched and the goods are received the
exchange rates may change and may affect the profitability
of the transaction.
5. The Bretton Woods Agreement tried to overcome this
uncertainty by fixing the exchange rates and fixing the
value of the US Dollar against a fixed amount of gold.
But very soon it became necessary to devalue the US Dollar
against gold as inflation affected the price of gold and
those of goods and services differently. In the other
countries too the value of gold and goods did not stay
static but increased or decreased at different rates.
6. Very soon some countries found it necessary to
devalue their currencies in order to be competitive. For
obvious reasons the devaluation had to be done without
informing the public before hand about the intention.
Once a major trading country devalues, the whole fixed
exchange rate system of Bretton Woods was thrown into
7. The speculators then moved in and forced the
Governments to allow the market to determine the exchange
rates. This was fine as long as the speculators depended
on the actual performance of a country’s economy and
trade, and therefore on the demand or lack of demand for a
country’s currency to determine the value in exchange rate
terms of a currency. But the volume of trade between
different countries, the trade balance, etc. between them
and the perception of the different currency speculators
made it difficult to determine the exchange rate between
different countries at different times.
8. Since there was no longer a gold standard, by common
understanding the US Dollar, itself unstable, was used as
a standard. In the end the US Dollar became a kind of
common world currency used for payment of international
9. This acceptance of the US Dollar as an international
currency confers on it tremendous power. The demand for
US currency becomes very high and this demand must give
strength to the dollar which otherwise it would not have.
Its very status and use as an international currency
creates certain opportunities for profitable manipulation
by the unscrupulous.
10. Ordinarily there would be a need to exchange one
currency into another only to pay for trade between
nations. Since the US Dollar is the currency most
frequently used for payment, there is always a need to
change for the US Dollar. The rate of exchange between
any currency and the US Dollar therefore becomes
important. Since there is no gold standard and
Governments can no longer fix the exchange rate, the
exchange rate between a country’s currency and the US
Dollar has to be determined on the basis of supply and
demand. Currency traders, ever in search of more
profits for themselves, soon discovered that they can
artificially create shortages or excess of supply of
any currency at will.
11. Initially they had to hold the relevant currencies
in order to do business. Today that is no longer
necessary. hey can offer to sell forward currencies that
they don’t have in the hope that their sale would push
down the value of the currencies. Once the value goes
down they can buy back and deliver to the earlier
purchasers who had bought at the higher price.
12. If there is a need to guarantee delivery they can
leverage their holdings with the big banks. The
leveraging can be as high as 100 times their holdings. In
other words hedge funds with capital of one billion can
offer to sell as much as 100 billion. Few central banks
can counter them by buying up the national currencies
offered for sale by the traders.
13. From being mere money changers these currency
traders have become unbeatable manipulators of the
exchange rate of any currency. In the process they
made billions of dollars.
14. International traders can hedge against the
fluctuation in the exchange rates but this cost money
and obviously increase the cost of doing business. But
when currency traders actually devalue or revalue
currencies within very wide ranges, hedging becomes not
only expensive but very difficult for traders. The
cost of trade must escalate and world trade will not be
able to expand. Poor countries as usual will suffer
15. Malaysia has fixed the exchange rate against the
US Dollar. RM3.8 equals one US Dollar. Since 85
percent of our trade is paid in US dollar this makes
trading easier. There can be no doubt that this fixed
exchange rate has contributed much to the high growth
of Malaysian world trade post turmoil. We are now the
17th biggest trading country in the world and we hope
this year, insya-Allah, to achieve total trade of 200
billion US Dollars, of which export would be slightly
bigger than imports.
16. Unfortunately since the currencies of our trading
partners fluctuate against the US Dollar, their
earnings or losses cannot be correctly ascertained. So
far our trading partners have not been affected too
much by the uncertainties in their exchange rates
against the US Dollar.
17. Trade between the Islamic countries cannot be
totally separated from world trade. But it would still
be useful for Islamic countries to evolve a system of
exchange rates which would enhance trade between them.
It is entirely possible for us to devise a payment
system which is not dependent on the US Dollar.
18. Malaysia had introduced what we called a
“Bilateral Payments Arrangements” in which total trade
between two countries are computed over a fixed period
of time and only the balance between the total value of
export and imports paid in an agreed currency. Within
the country a central agency would collect payments
from an importer in local currency and pay an exporter
also in local currency. The balance between total
exports and imports can be paid in the currency of the
exporting country or in other acceptable currencies.
Alternatively the balance can be retained by the
central agency or Central Bank in order to pay for
future transactions. This will eliminate the need to
hold foreign currencies or the US Dollar.
19. Obviously this bilateral payments arrangement will
enable countries without foreign exchange i.e. the US
Dollar to trade or to increase their trade volume. It
would certainly be good for world trade. Since the
introduction of the arrangements and agreements reached
between Malaysia and many developing countries, trade
with these countries has increased by more than 400
percent over a few years. Malaysia is ready to enter
into a bilateral payments arrangement with Islamic
countries in order to improve trade. The bilateral
payments arrangement can be extended so that trade
between more than two countries can also be settled in
the same way.
20. Basically the bilateral payment arrangement is a
more sophisticated form of barter trade. And barter
trade is the fairest way of trading as we get the
goods that we want at the price we want in local
currency. We know that some goods are very cheap in
one country because of over supply or lack of demand
but very expensive in another country. The exporting
country can get a fair price from the export of the
locally cheap goods based on the acceptable price in
the country where demand is better. The terms of trade
would thus be fairer through barter trading. But since
barter trading is cumbersome, the payment arrangements
can facilitate large scale trading more effectively.
21. The Islamic countries can also create their own
common currency. This should not belong to any country
because it would give undue advantage to the country
whose currency is accepted as the trading currency of
the Islamic nations.
22. Recently there was a proposal to create a gold
dinar which can have a specific value in the currencies
of the different Islamic countries. All the Islamic
countries must have a share in the international
Islamic dinar as a trade currency and as national
reserves. The dinar must be in gold and not paper.
How practical this will be will have to be dealt with
later when the volume of trade becomes big.
23. Effectively the use of the Islamic dinar will
create an Islamic trading bloc. Such a trading bloc
will be a powerful voice in International trading
regimes and the shaping of the new financial
24. There has been much talk about an Islamic economic
community. It is very difficult to realise this but
the international Islamic dinar is quite achievable and
can be the beginning of a closer economic cooperation
between the Muslim countries. Islamic banking can
really take off as all the Muslim countries adopt
standard practices in banking and finance, compatible
25. However it would not be wise to reject the
commercial banking practices as found today. The
Muslim world would still have to trade with the rest of
the world as individual countries or as a regional
group or as an Islamic Financial Community. With both
systems existing there will be a choice for everyone.
We have already found in Malaysia a readiness to accept
Islamic banking if it suits the needs of the
businesses. It would be a mistake to suddenly change
to Islamic banking. All changes are disruptive.
Sudden and complete change even for the good is most
disruptive of all. In all matters we Muslims must
never be fanatical. Gentle evolution is far better
than sudden drastic revolution. So it is for politics,
so will it be for the financial systems.
26. Islam is a way of life. There is nothing that we
do that is not governed by the injunctions of Islam.
Certainly the economic activities of the Muslim society
are governed by Islamic perceptions of what is right
and what is wrong. The transaction involved in a
simple sale is a contract which requires the agreement
on the part of the seller to sell at a certain price
and the buyer to buy at that price. Whereas an
ordinary purchase need not involve a written agreement,
the Quran stipulates written undertakings where the
transaction is substantial, involving cash payments or
credit or delayed payments. While no interest is
permitted the price may be determined based on the
amount of the goods involved, the time of delivery and
reasonable profit. The financier in an Islamic
transaction earns a part of the profit and accepts also
the possibility of a loss.
27. The Al-Quran is the ultimate guide but as we all
know the interpretation of Quranic injunctions differ
with different people. It would not do for people
involved in business and, in particular, in financial
transactions to have each making his own interpretation
of what he has undertaken or committed to. It is
important therefore to have standard interpretations
which are agreed to by everyone. If Islamic banking is
to be universally accepted including by non-Muslims,
the practices must be documented and standardised.
28. The Islamic Financial Services Organisation or
IFSO is an institution which has been proposed to set
up the specific standards and financial practices in
Islamic banking. Malaysia has offered to host this
institution. The setting up of this institution will
help establish and maintain the soundness of Islamic
banking. Considering the huge amounts of money held by
the Muslim countries, and their being deposited outside
the Muslim world where Islamic banking is not available
and where they cannot earn any interest, the loss to
the Muslim world is enormous. Yet there are so many
Muslim countries in need of funds and they are forced
to accept loans under the riba system. Thus while
Muslims cannot earn interest Muslims are paying
interest. In certain cases it is Muslim money which is
being lent by others who earn interest on them. If we
are able to set up Funds and Islamic Banks, we can not
only earn from the investments but we will be reducing
the burden of our poor Islamic brothers. I am sure if
we are able to set up IFSO and establish the standards
and practices of Islamic banking, we will all benefit.
For banking in Islam is not purely for the lender to
make profits at the expense of the borrower, but for
both parties to benefit from the financial transaction.
I believe that Islamic banking is far superior to the
present commercial banking practices.
29. Globalisation is already upon us. So while the
inflow of foreign capital can be beneficial to a
country, its sudden outflow can destroy decades of hard
work in developing a country’s economy. Under present
conditions globalisation can have a disastrous effect
on the economies of Muslim countries, which are all
developing economies. Even the richest of us are
actually developing for we have little capacity except
to produce and sell raw materials, principally oil.
30. Muslims must never forget that we missed the
Industrial Age completely. We have practically no
industrial capacity because when the Industrial
Revolution was taking place we could not decide whether
it was compatible with Islam or not. In the end we
were left behind and found ourselves totally dependent
on the industrialised countries for our needs,
including of course our defence needs.
31. Today we see the rapid advance of the Information
Age. Whether we like it or not it is going to have a
tremendous impact on our society and on our religion.
We cannot isolate or insulate ourselves from the
Information Revolution and the technology which is
driving it. Our economy will certainly be affected by
32. While we are thinking about Islamic banking, our
trade and our economy, we have to learn how to deal
with the information age and to acquire and make use of
the technology and its applications so that we would be
able to sustain ourselves and our economies.
33. This involves not just learning and mastering
Information technology but in many instances the
development and innovation in the applications, the
software and even the hardware by us. We have to be on
guard so that our religion and our values are not
undermined. Remember how the spread of socialistic
ideologies actually resulted in some Muslim countries
abandoning Islam because they saw the failures of
Muslim countries and wrongfully attributed it to the
Islamic religion rather than the wrong interpretations
of Islam by their countries. We see how Muslim
countries were conquered because they were materially
weak and how many Muslims abandoned the religion and
even became atheists.
34. We cannot afford to have our countries fail in the
Information Age through our own failure to acquire the
technology to protect and prosper our countries.
Spiritual and religious tenets of Islam must be
maintained but at the same time the economic well-being
of the Muslim countries must not be behind those of the
developed countries. Only with equal spiritual and
material strength can we hope to sustain the Islamic
way of life and Islam itself. Terrorism are mere pin
pricks which achieve nothing for the ummah.
35. We all share a common belief and, to varying
degrees, a common culture and tradition. There is no
serious ideological conflict. Inevitably, there are
political differences but none that cannot be overcome
for common good. We are all part of the world with a
pressing need to improve the social and economic
conditions of our people. It is therefore important to
ask ourselves how we can put our hands together to
increase the pace of socio-economic progress of the
Muslims against the background of a troubled world
36. The last time the world ushered in a new
millennium, the Islamic civilisation was at its peak.
However, at the end of that millennium, Islamic
civilisation was at its lowest ebb. In our endeavour
to achieve the advancement in Islamic banking and
finance, we are in fact trying to resuscitate the
glorious Islamic civilisation. We still have a long
way to go. We have to change our attitude if we want
to avoid losing out again as we did in the Industrial
Age. The road ahead for all of us will be difficult
and challenging, but if we collectively as an Ummah
rise to the challenges, insya-Allah we will succeed. I
pray that this 3-day symposium would be able to guide
us in addressing some of the pressing issues facing us.