Riba-free Economy and the Islamic Awakening

"Banking was conceived in iniquity and was born in sin. The Bankers own the earth. Take it away
from them, but leave them the power to create deposits, and with the flick of the pen they will create
enough deposits to buy it back again..." ~attributed to Sir Josiah Stamp
1. Introduction
The events that occurred in Tunisia and Egypt recently are remarkable. Decades-old despotic
regimes were overthrown in weeks through collaborative protest. While it is true that these
uprisings create the potential for positive change, they also run the risk of reinstituting prevalent
authoritarian structures and leading to cosmetic variation rather than truly altering the social fabric
within these societies.
As protests spread throughout the Arab world it is important any reform effort not only alters
domestic institutional structures but also addresses the core complications associated with seeking
such reform in a hostile international environment. Any effort to break away from old networks of
domination must address the international macroeconomic norms that materialize in a riba-based
economic order and that manifest as cause of unjust privilege and elitism in any society.
This paper addresses a primary aspect of this systemization. The use of riba in the modern monetary
order preserves a disproportionate portion of wealth with an elite few. There is perhaps no greater
example of this then in the way the international monetary order operates today under interest-
based, independent central banking and fractional reserve structures. Money is a commodity in this
model, manufactured from nothing but with power to purchase and direct credit in a society. As a
consequence, one of the most creative opportunities in the realm of policy-making is lost and
relegated to a tiny minority. Unfortunately nearly every nation has adopted this model the effect of
which is to organize even developed, democratic nations as economic hierarchies. This is true when
we look at consequences internal to nations as well as when we arrange isolated national economies
into a global framework while paying attention to the effects of these institutionalized norms.
In the era of globalization the role that present interest-based structures play in creating
authoritarianism across the globe must be understood for any reform or revolution to prove
effective. This paper seeks to discuss this reality and proposes that a major mechanism toward
reforming the contemporary order is the use of riba-free endogenous loans issued by a monetary
authority.
2. Contesting the Regime: Contextualizing the Cause of Dissent in Tunisia and Egypt
On December 17, 2010 Mohamed Bouazizi lit himself on fire after his fruit and vegetable stand was
confiscated by Tunisian police for selling without a permit. The Tunisian public, in empathy, took
to the streets hours later and organized protests that eventually led to the ousting of President Zine
El Abidine Ben Ali, in power for 23 years, 28 days later. Within days similar opposition in Egypt
was mounted and eventually Hosni Mubarek, ruler for 30 years, was also removed. Within hours of
his ouster protest movements were occurring in countries all over the Arab world. Today everyone
is certain that the Middle East and North Africa is being remade but no one is certain just what these
societies will look like afterwards.
The protests were caused by an array of grievances but the majority of coverage reduces causality to
a reaction to domestic oppressions. While this refrain is convenient for dominant democratic powers
seeking to downplay the role of Western support for these regimes over the years, it is a view that
largely ignores the primary grievances expressed by the opposition movements, a great many of
them economic concerns like rising prices, unequal opportunity, and unfair distribution of wealth.
On November 5, 2010 Ben Bernake, Chairman of the Federal Reserve, announced the ‘quantitative
easing 2’ program inserting billions of dollars into the global economy through a near zero percent
interest rate policy because “the pace of recovery in output and employment continues to be slow.”
This despite earlier efforts that purchased $1.7 trillion in government bonds and emergency lending
that took $12.3 trillion worth of toxic debt from off the books of private banks and deferred risk
onto the American taxpayer 1. Chairmen Bernake announced the second wave of easing by saying,
“the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the
end of the second quarter of 2011” One member of the committee voted against the strategy
expressing concern that it, “increased the risks of future financial imbalances and, over time, would
cause an increase in long-term inflation expectations that could destabilize the economy.” 2 The
inflationary effects of this policy represent a key element mostly missing from current coverage of
uprising in the Arab world.
Within 24 hours stock markets around the world jumped nearly 2 percent and the price of
commodities prepared for an inflationary push. The Egyptian Central Bank met in emergency as the
pound experienced the largest appreciation in six years against the dollar. In both Tunisia and Egypt
the central banks maintained interest rates3 denying inflationary concerns based on Household
Expenditure Survey data4 that reports only aggregated expenditure and contains no information on
quantity making it virtually impossible to derive any information about prices whatsoever.5
Inflation became a global phenomenon immediately; a global commodities benchmark hit a two-
year high6 and trekked back towards levels that led to similar protest in April, 2008. A confidential
World Bank study later revealed that the inflation was caused by a “confluence of factors” including
bio-fuel production, speculative activity, the decline of the dollar and higher energy prices. 7
In actuality the Federal Reserve is pumping liquidity into an environment where domestic
investment is virtually impossible in light of the pernicious private and public debt of American
society. In essence the policy represents the United States attempting to export its food inflation to
the rest of the world and putting pressure on foreign economies to increase their exchange rates to
combat the inflationary pressure affecting commodity prices.
Zero interest rates have generated a gain for stock markets and maintained asset prices that were
inflated for many years but this policy has done little to stimulate U.S. employment or lending and
has initiated a currency war amongst developed economies where the cheap dollars create an
opportunity for arbitrage known as a carry trade. Banks benefit while developing nations are
crippled and forced to either print their own currency to absorb the dollar inflows or to heighten
rates to defend exporters and control for inflation. Former World Bank economist Joseph Stieglitz
acknowledged on October 5, 2010 that instead of helping the global recovery, the “flood of
liquidity” was causing “chaos.” He stated, “The irony is that the Fed is creating all this liquidity
with the hope that it will revive the American economy… It’s doing nothing for the American
economy, but it’s causing chaos over the rest of the world.” 8
3. Consequences of Quantitative Easing

1
See http://www.federalreserve.gov/newsevents/reform_transaction.htm
2
See http://www.federalreserve.gov/newsevents/press/monetary/20101103a.htm
3
See http://www.bct.gov.tn/bct/siteprod/english/actualites/evenement.jsp
4
See excel data from Central Bank of Egypt here http://www.cbe.org.eg/public/MPC_InflationCoreFebE.pdf
5
http://ageconsearch.umn.edu/bitstream/42251/2/08-WP_475.Fabiosa-Soliman.pdf
6
http://www.jefferies.com/cositemgr.pl/html/ProductsServices/SalesTrading/Commodities/ReutersJefferiesCRB/Index
Data/index.shtml
7
http://image.guardian.co.uk/sys-files/Environment/documents/2008/07/10/Biofuels.PDF
8
http://www.reuters.com/article/2010/10/05/us-stiglitz-economy-idUSTRE6944M920101005
By December 17, Mohamed Bouazizi was self-immolated and on January 6, 2011 Algerian youth
protested over high food prices shouting “bring us sugar;”9 within months the leaders of Tunisia and
Egypt were deposed and protests were regional. Inflationary trends remain at highs, yet the Federal
Reserve expresses little remorse. The current Federal Reserve Chairman of St. Louis was recently
questioned about the connection between ‘quantitative easing 2’ induced inflation and Middle East
unrest. He said that despite their being evidence that U.S. monetary policy is imported by central
banks around the world Middle East “countries choose to have a flexible exchange rate and that is
up to them” and then ended by saying that the only concern of the Federal Reserve is U.S. interests
(Bullard, Feb. 28, 2011) denying any accountability for the potential alternative reality
aforementioned or acknowledging that the U.S. system coordinate to run an international financial,
military, and corporate empire.
In reality this is paradoxical. Modern international monetary policy suggests that nations are to
manage exchange rates through interest rate adjustment. Countries that run a current account
deficit10 are to raise interest rates in order to attract a capital inflow of foreign funds whereas
countries with low interest rates expect that international and domestic capital will flow elsewhere.
The United States runs a persistent balance of trade and current account deficit and by all standards
should have to heighten interest rates in order to follow convention; U.S. quantitative easing
directly contradicts this decree. The net effect of such a policy is to support an astronomical asset
bubble in the U.S., the result of artificial market manipulation pushing money into stocks and
lowering the dollar’s exchange rate to help U.S. exporters. It has also created cheap American
dollars flowing into foreign markets creating imbalances, widespread commodity inflation, and
political unrest that has the potential to dampen any recovery.
The Federal Reserve has been conducting contradictory policy like this for over a generation.
Consequentially financial markets are full of speculation and previous crashes were only repaired
by similar efforts at stimulus. This culminated a hyperinflationary tendency in 2008 that was
mitigated by the financial crisis. These realities show a return to that inflationary process, however
little connection has been made with regard to this issue. The implications of this are severe.
Without contextualizing the revolutions in Tunisia and Egypt, this financial formulation will persist
alongside peoples trying to establish justice in their respective societies. Unfortunately, absent effort
to connect these factors, one is rendered incapable of posing solutions to the problem. One all-
pervasive and influential factor surpasses and at the same time connects them all: the nature and
role of monetary policy in society today.
4. The International Monetary System: A Ribaa-based Phenomenon
It is often assumed that an economy of private enterprise has an automatic bias
towards innovation, but this is not so. It has a bias only towards profit. ~ Eric Hobsbawm
The decisions of the Federal Reserve System exert great influence on the world because the dollar
represents the reserve currency of a fiat order. Neglecting the magnitude of this influence
beleaguers any proposed reform because it limits the scope of analysis. Consequently, one in a
country like Egypt or Tunisia can reduce the cause of dilemma and domestic repression to internal
faces and figures while failing to recognize that the contemporary monetary order mandates these
circumstances from afar.

9
http://news.yahoo.com/s/ap/20110106/ap_on_re_af/af_algeria_riots
10
Defined as “the difference between the value of exports of goods and services and the value of imports of goods
and services” http://www.imf.org/external/pubs/ft/fandd/2006/12/basics.htm
At the head of these financial influences lie two institutional norms: independent central banking
and fractional reserve lending. It is only in understanding these phenomena and their relationship to
national policy today that true alternatives may be formulated.
The modern order of globalized finance was ushered in at the end of World War II. At that time the
United States was essentially the only productive economy in the world and the Bretton Woods
agreements formed an international monetary system that would be negotiated under transnational
institutions like the World Bank (WB) and the International Monetary Fund (IMF). This order
signified a rising role for monetary policy in the international arena. Each country was obliged to
peg its currency to the U.S. dollar and the IMF was granted an ability to bridge any imbalance of
payments. The dollar was the only currency convertible to gold and this system continued until
August 15, 1971 when President Nixon discontinued the gold standard and effectively transitioned
into a completely fiat order granting monetary authorities the power to issue currency without legal
constraint.
Today almost every nation relinquishes control of its currency to independent central banks that
have a monopoly on the issuance of bills. The central banks are responsible for issuing the money
supply, regulating it, and controlling interest rates and are typically quasi private-public institutions
that operate on behalf of private interests. It is a delicate relationship that is under increasing
scrutiny across the world. The Federal Reserve undergoes extreme effort to downplay the effects of
its relationship with private power claiming that it is “independent within the government.”
However, by its own account, the institution admits that the Federal Reserve Banks are “organized
much like private corporations,” that they “issue shares of stock to member banks” and stock that
“may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per
year.11” Most people know little about the grave implications of this relationship.
The shareholders of most central banks are commercial banks, the very banks that can multiply any
borrowing of the monetary base and are empowered to lend more money than they hold on deposit
via the powers of fractional reserve banking. This relationship places the planning of a national
economy in the hands of the banking sector. It has been replicated across the globe today and is
important for one trying to understand the source of money in any nation.
The monetary order represents a feudal system where the cost of money plus riba is gradually more
expensive at layers of access. The Federal Reserve originally creates dollars out of nothing as do the
banks that represent their primary dealers and therefore have little cost, next in line are elite
investors and foreign surplus running governments who invest in bonds and receive principal plus
interest payment. Thereafter the cost of money or credit is more expensive at principal plus interest
for the federal government followed by small banks, state and local governments and the public at
large.
The international order is organized in much the same way with the dollar as reserve currency,
financial institutions with primary access to it next in line, followed by the wealthy elite and
developed or surplus nations and then this order dominates developing nations by controlling bonds
from afar. Floating exchange rates create the possibility that speculators attack currencies as nations
accumulate dollar surpluses but cannot invest them in productive development because of potential
speculative attacks. It is this primary factor that forces developing economies to obey financial
dictates and forms a system of monetary empire paid for completely with money created from
nothing and using riba to influence policy around the world.

11
http://www.federalreserve.gov/generalinfo/faq/faqfrs.htm
It is obvious to see that these relationships create a society dominated by banks, financial
institutions and the wealthy. A recent study by Credit Suisse for example reported that, “At the top
of the wealth pyramid, there are over 1,000 billionaires globally… at the base of the wealth
pyramid there are three billion people with average wealth per adult of below $10,00012 Real wealth
is allocated upwards due to the redistributive outlay of money for free at the upper levels of banking
with scarcity, taxes and higher rates of riba perpetuating a model that can be described as a ponzi
scheme under present conditions13. The fact that there is never enough currency in circulation to
cover all debt issuance within the bond market keeps the lower echelons working to enable a
process that can never attain equilibrium and utilizes debt as a means of control.
The run-up to this version of globalization was phenomenal and heralded by all sections of the debt
hierarchy as an era of prosperity and triumph for economic liberalization. Thomas Friedman, chief
proponent, termed the policies associated with the order as a ‘Golden Straightjacket,’ or “the
defining political-economic garment of this globalization era” and marked by a particular policy set
that opened national economic sovereignty to global capital markets, multinational corporations and
the ‘electronic herd’, a group of “often anonymous stock, bond and currency traders and
multinational investors, connected by screens and networks. 14” The financialization of the
international arena however may also be defined as “a process whereby financial services, broadly
construed, take over the dominant economic, cultural, and political role in a national economy.15”
Indeed it almost collapsed the global economy in 2008, but policy practice since has marked a
continuation of that order. The protests and uprisings across the world, whether completely
conscious of it or not, represent potential opposition to this perpetuation and generate new
opportunities to alter the order altogether.
5. Cases in Point: Egypt and Tunisia in the Run-up to Revolution
Since the revolution, nothing has changed… We threw out Ben Ali, that's all."
~Kamid Hamdi – Tunisian, March 12, 201116
The relationship between dollar-denominated arrangements and developing economies creates a
monetary empire. The international arena manifests this relationship in exogenous inputs of foreign
capital, aid, and technical know-how from institutions like the World Bank and IMF that then act as
the central banks and planners of developing nations. These institutions oftentimes utilize natural,
economic or political crisis (Klein, 2007) to extend assistance under structural adjustment
conditionality, a policy set that typically leads to external dictation of key aspects of monetary and
fiscal policy and tends to run counter to the interest of general populaces.
Consequentially, less developed economies tend to adopt policies that not only preserve the
interests of foreign influence but that replicate similar banking models domestically. However,
where central bank independence can be somewhat verified in stronger, developed nations,
quantifying the relationship of banks and government in developing economies is difficult because,
“laws are often incomplete, ambiguous, or simply not respected (Farraq and Kamaly, 2007).” The
banks are usually an embedded component of the regime and thus help to maintain authoritarianism.

12
https://www.credit-suisse.com/news/en/media_release.jsp?ns=41610
13
Bernie Madoff, convicted of a $50 billion ponzi scheme has recently alleged that banks were complicit in his
operation and claimed that “whole government is a Ponzi
scheme."http://news.yahoo.com/s/ap/20110228/ap_on_re_us/us_madoff_scandal
14
Friedman, Thomas. Understanding Globalization: The Lexus and the Olive Tree. First Anchor Books. (2000).
15 st
Phillips, Kevin. American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21
Century. Viking Books (2006)
16
http://www.npr.org/templates/story/story.php?storyId=134482424
As a result, developing nations have proven to be the host for parasitical operations that allow the
riba-based international order to continue; Tunisia and Egypt are prime examples.
Tunisia and Egypt were the World Bank’s poster children for economic success. On October 27,
2010, a few weeks before the protests, World Bank commentary on economic progress in Tunisia
embellished the state of the economy claiming, “Tunisia has boosted its global competiveness and
seen exports double over a little more than 10 years. The best illustration of Tunisia’s improved
competiveness is its total factor productivity growth, which often drives investment…Tunisia
ranked as Africa’s most competitive country in Davos 2009 Global Competitiveness
Report.(CITE)."
Egypt was not far behind. The IMF reported in an Executive Board summary that Egyptian reforms,
“spurred rapid output growth…underpinned by foreign investment-driven productivity gains and
the favorable external environment. Reforms also reduced fiscal, monetary and external
vulnerabilities, leaving some room to maneuver on macroeconomic policies in the event of negative
shocks17.” The World Bank concurred calling Egypt, “one of the champions of economic reforms in
the Middle East and North Africa region.18”
In reality, reforms were not reaching the majority of the populations. Tunisian reform began in 1986
when the country adopted structural adjustment policies in line with the ‘golden straightjacket’ and
the North Atlantic Treaty Organization (NATO) covertly ushered Ben Ali to power so that the
reforms could be implemented wholeheartedly. In 1999 a former head of Italian military secret
service SISMI declared to a parliamentary committee that "In 1985-1987, we (in NATO) organized
a kind of ‘golpe’ (coup) in Tunisia, putting president Ben Ali as head of state.19"
Ben Ali was an avid adherent to the international monetary order throughout his 23 year rule,
implementing every recommended reform coming from it. However, the economic reforms,
professed as documentation of liberalization, actually made those on the bottom of society, “worse
off economically as older forms of clientelism reappeared, undermining the prospects for political
democratization (King, 2003, p.6)20.” Inflation, high unemployment, and a low quality of life for
those at the bottom of society meant little to World Bank and IMF analysts as aggregate growth
promoted the notion that the Tunisian economy was growing, reforms were working and that there
was an economic miracle in action.
Egypt followed the norm as well and started implementing IMF and World Bank reforms around
the same time as Tunisia. However adherence increased in 2004 with the appointment of a new
government that adopted every recommended adaption. Egyptian growth remained above 6
percent from 2004 thru 2010 and the international community touted Egypt as a bastion of
successful reform. The economy was continuously deregulated and open to further foreign
investment and privatization as political power was decreased for unions at the hands of a
repressive state. In reality aggregate growth absent inclusion of distribution hid costs to the general
population. This was expressed by Kamil Abbas, General Coordinator of the Center for Trade
Union and Workers Services in Egypt, in an interview in August 2010 with the Wall Street
Journal. In it he explained, “The gains touch only certain segments of the population — the upper

17
http://www.imf.org/external/np/sec/pn/2010/pn1049.htm”
18
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/MENAEXT/EGYPTEXTN/0,,menuPK:287166~pa
gePK:141132~piPK:141107~theSitePK:256307,00.html
19
http://www.repubblica.it/online/fatti/afri/tuni/tuni.html
20
King, Stephen J. Liberalization Against Democracy: The Local Politics of Economic Reform in Tunisia. Indiana
University Press, 2003.
crust of society… You have employees making $20 a month in some new businesses. What kind
of reform is that?21”
The Egyptian and Tunisian economies opened up to foreign investment as industrial and
infrastructural development was neglected in favor of low-end manufacturing, tourism and menial
jobs. Land privatization and agricultural reform rendered both nations food dependent as in Egypt
6 million tons of mostly U.S. wheat is imported a year despite having ample arable land and being
food independent as early as the 1960’s. Military support and foreign aid in each nation from
abroad created a dependency that allowed the dictatorial relationships to persist. Barack Obama
referred to Hosni Mubarak as a "stalwart ally of the United States" and "force for stability and
good" before his Cairo speech in 2009 and Nicolas Sarkozy excused France’s positive regard for
the Tunisian regime shortly after Ben Ali’s deposition. He exclaimed, "Behind the emancipation of
women, the drive for education and training, the economic dynamism, the emergence of a middle
class, there was despair, a suffering, a sense of suffocation. We have to recognize that we
underestimated it.22” Developed nations supported these regimes to the end and only recently have
come out with rhetorical support of the internal alterations as they prepare to influence new
regimes to do similar bidding.
The policies manifested in both Egypt and Tunisia were only possible with the complicit support of
the international monetary order and ignored the ravaging effects these policies had on the poor
majority, the repressive political context and the possibility that short term reform could create
instability and lead to a replacement of the regime altogether. Despite a warranted celebration in
favor of political reform, any alteration will prove cosmetic unless it addresses the larger
macroeconomic practices that conform to the order of dollar dominant debt hierarchy.
It already seems as if there will be no serious or complete effort to break away from the norms of
financialized globalization as induced by the global order. Immediately after Bin Ali was deposed
Standard & Poor’s lowered Tunisia’s currency rating to triple B+, while Moody’s downgraded its
foreign debt to Baa3, the lowest investment-grade rating23 and Tunisia's Central Bank Governor
Mustapha Nabli said, "It is possible that our needs for financing may increase at both budgetary and
external levels.” "We will need financing and we are working with the World Bank, the IMF, the
African Bank, the European Union and Arab Funds. 24" He also agreed to honor external debt
completely, “Tunisia will pay back its debts, estimated at 1120 million dinars for 2011 ($800
million), on the due dates25” he said.
In Egypt the financial consequences are similar; Egyptian currency reserves declined by a billion
dollars due to the unrest26 as the stock market remained closed for over a month and the pound
suffered on expectations of near term decline.27 “It is expected that the balance of payments at the
end of the third quarter of the current financial year which ends on March 31, will register a deficit
of more than $3 billion," the central bank said in a statement. Inflation continues to rise steadily and
Egypt’s stock market will be exposed to short term sell off as it resumes. Egypt’s stock market
regulator recently eased rules on margin calls claiming that these efforts were to develop
“mechanisms to resume trading with the aim of limiting the volatility that may happen in the market
when trading starts, and to mitigate the negative impact on investors… as well as to spur demand.”

21
http://blogs.wsj.com/economics/2010/08/03/egypt-critical-take-on-a-model-reformer/
22
http://www.guardian.co.uk/world/2011/jan/24/nicolas-sarkozy-tunisia-protests
23
http://www.ft.com/cms/s/0/21b42d54-23f3-11e0-bef0-00144feab49a.html#axzz1GVHEou9b
24
http://en.ce.cn/World/Africa/201102/26/t20110226_22249802.shtml
25
http://www.bct.gov.tn/bct/siteprod/documents/20110125.1.ang.pdf
26
http://www.bloomberg.com/news/2011-03-07/egypt-s-february-foreign-reserves-decline-to-33-3-billion-1-.html
27
http://af.reuters.com/article/egyptNews/idAFLDE7250C320110306
The developed countries responded accordingly. At a two day meeting in France held shortly after
the ouster of Mubarek and Ben Ali finance chiefs from G20 nations issued a joint statement
claiming, "We stand ready to support Egypt and Tunisia, with responses at the appropriate time well
coordinated with the international institutions and the regional development banks, to accompany
reforms designed to the benefit of the whole population and the stabilization of their economies,"
and International Monetary Fund chief Dominique Strauss-Kahn said his global lending institution
stood ready to help Egypt and Tunisia if asked, but that he had received no request so far. 28 All of
these indicators suggest that, absent any radical alternative, these economies will remain at the
mercy of the international financial order.
These internal situations exist alongside a global macroeconomic reality of continued quantitative
easing and subsequent commodity inflation. If the economic dimensions of this movement are not
understood and included in analysis then there is little hope that the uprisings in Egpyt, Tunisia or
any other country will be effective. Unfortunately, any competent address of the issue requires that
economic phenomenon are understood through the lens of elitist domination contemporary norms
create. Absent an address of the repressive nature of money as debt control mechanism in the
international arena, there can be no change.
6. Monetary Policy Today: Interest Rate Relations and the Real Economy
“Inflation is always and everywhere a monetary phenomenon.”~Milton Friedman
Monetary and fiscal policies are the two primary tools of affecting macroeconomic behavior. The
relinquishment of monetary policy to the financial sector limits government to fiscal matters. As
austerity measures follow massive monetary intervention that socialized the losses of banks, all
should recognize something is fundamentally wrong in this relationship.
The nature of the international monetary order guarantees that globalization is a predominantly
monetary phenomenon dominated by old colonial nations, banks, multinational corporations and a
global elite powered by access and ability to leverage debt. As a consequence greater portions of
indicators and variables are composed of purely financialized denominations and give a false
reading that the global economy is growing.
The development of today’s economic order is largely a byproduct of a philosophical worldview
rooted in usurious manipulation, conquest and private triumphalism: a worldview that promotes the
pursuit of profit absent moral judgment as ultimately benign. Thus contemporary monetary policy
has evolved inside an environment that necessitates a justification for imperial patriarchy. As
Thomas Friedman put it, “Unfortunately, this Golden Straitjacket is pretty much ‘one size fits all…’
It is not always pretty, gentle or comfortable. But it’s here and it’s the only model on the rack this
historical season29.” Monetary policy represents the means by which old colonial relationships are
maintained and the global elite retain control.
Monetary practice has grown increasingly sophisticated and complex but is largely derived from a
body of monetarist theory that preceded the study of macroeconomics and stems from the quantity
theory of money. The quantity theory of money holds that there is a direct proportionate
relationship between money and prices. It is important to note that the theory is rooted in
deliberation about the effects of “new money,” coming from the “new world” and thus introducing
an inflation after an inflow of gold and silver due to conquest,30 but the theory has been
successively and successfully sophisticated over several generations and appeared to “receive a

28
http://www.reuters.com/article/2011/02/19/us-g20-mideast-idUSTRE71I2MG20110219
29
Friedman, Thomas. Understanding Globalization: The Lexus and the Olive Tree. First Anchor Books. (2000)
30
See Nicolaus Copernicus (1517), Memorandum on Monetary Policy or Jean Bodin, Responses aux paradoxes du
sieur de Malestroict (1568).
clinching verification during the Great Inflation of 1969–1983 (p.3)” which was heralded as a
triumph for central banking due to “shifting perceptions with respect to the importance of price
stability (Volker, 4).” During this era monetarism targeted the money supply in order to effectively
manage inflation.
The triumph was short-lived however as ample evidence documented that the efforts of central
banking to control the money supply were uncorrelated. Instead money supply was viewed
endogenously as directed by conventional banks inside the system and not as the cause of inflation
or deflation but as a reaction to price fluctuations inside the system. Targeting interest rates became
the means of price stability and there is virtually no referral today to the LM curve (quantity of
money versus money demand) whatsoever. Instead central banks target short term interest rates.
Primary evidence of this reality lay in the fact that the Federal Reserve no longer publishes data
affiliated with the M3 measure, the measure showing the fastest growth in monetary supply, after
claiming that the monetary aggregate “has not played a role in the monetary policy process for
many years31.”
These developments are important for a few reasons. First a theory that has stood the tests of time
for centuries has largely been eradicated and the consequences can be seen in contemporary efforts
at stimulus and secondly debate about the exogenous or endogenous nature of money demand
documents a blind acceptance of the system itself while creating a haphazard argument of
circularity that ignores the reality that under ribaa-based central banking and fractional reserve
lending the entire banking sector becomes endogenous to the real economy and injustice prevails.
Over a 20-year period almost all nations adopted the dominant model of independent central
banking with price stability as the stated objective 32 and in reality the debt hierarchy of a riba-based
order led to inflation everywhere, a bubble of financial products, and a disintegration of real
productive development. Crises were temporarily deferred via interest rate manipulation. The U.S.
recently completed a Financial Crisis Inquiry that explained this reality. It reads, “From 1978 to
2007, the amount of debt held by the financial sector soared from $3 trillion to $36 trillion, more
than doubling as a share of gross domestic product.” The report concluded that, “this financial crisis
was avoidable… The captains of finance and the public stewards of our financial system ignored
warnings and failed to question, understand, and manage evolving risks within a system essential to
the well-being of the American public.” Still policy has not changed despite all signs indicating it is
fundamentally flawed.
Today a country’s currency is nothing more than a floating debt instrument controlled by banks and
the riba-based nature underlying these relationships means that cumulative debt always exceeds
money in circulation leading to the reason why this model produces debt hierarchy and an inability
to develop the real sector indigenously. It becomes increasingly apparent as policies fail to attain
intended results that there are deep systemic issues causing possible collapse. It is only in removing
the endogenous nature of monetary authority and riba altogether that any effective solution will
prevail.
Contemporary analysis of the theory has shown that while there is a proportionate relationship
between money and inflation in the long run there is no correlation between the growth rates of
money and real output33. This is largely due to the financialization of the economy under the ribaa-
based order and as stimulus efforts enter a zero sum game, typically referred to as ‘pushing on a

31
http://www.federalreserve.gov/releases/h6/discm3.htm
32
http://www.imf.org/external/np/pp/eng/2010/052710.pdf
33
http://www.minneapolisfed.org/research/QR/QR1931.pdf
string’ or trying to get out of a liquidity trap but being unable to influence the real economy, it
becomes obvious there is a need for fundamentally new thinking in the realm of monetary policy.
If there is a positive aspect of this position it is the reality that talk of riba-free monetary policy need
not seem so foreign anymore. The Bank of Japan has effectively had a near-zero interest rate since
1995 and the Federal Reserve rate has been reduced to near zero since September of 2008 with no
end in sight as there has been little to no consequential growth. Conventional theory suggests that it
is time for monetary stimulus, but with interest rates at zero there is no room for maneuvering under
present practices. It is evident that nothing less than a serious departure from the norms of the
international monetary order can produce effective reform.
7. Immediate Solution: Endogenous Riba-free Loans
The government should create, issue and circulate all the currency and credit needed to satisfy the
spending power of the government and the buying power of consumers..... The privilege of creating
and issuing money is not only the supreme prerogative of Government, but it is the Government's
greatest creative opportunity. ~Abraham Lincoln
The uprisings of Egypt and Tunisia created a spark for reform stretching from Wisconsin to Bahrain
and are representative of an outcry of those most affected by the international monetary order. They
also mark an indication of potential systemic disintegration in the event they are unable to render a
comprehensive challenge to the monetary order today. It is therefore necessary to connect political
repression and economic subjugation under a ribaa-based system. A solution that can fulfill this role
is in the utilization of what have been termed Islamic endogenous loans.
There is actually no need for sovereign governments to relinquish control over the money supply to
banking institutions. Sovereign nations can simply issue currency without entering the bond market
and paying interest at all. Islamic endogenous loans allow a nation to issue currency in a manner
that facilitates the development of productive means. Economist Rodney Shakespeare explains this
alternative,
In contrast to conventional endogenous money, an Islamic money supply is a modification of
present practice so that there can be central bank issuance of interest-free loans for the purposes
of productive capacity. The issuance is administered by the banking system, and is ultimately
repayable to the central bank, does not have interest attached, is always directed at productive
capacity and thus serves the real economy, efficiency and resource-allocating purposes of a
market economy, has wide ownership, social and economic justice purposes. 34
The use of riba-free endogenous loans creates solutions to the aforementioned issues. This
alternative method of monetary policy is free of debt and can garner economic activity into real
productive measures most needed by society. This type of intervention also immediately solves
the issue of unemployment and can control for inflation while taking major steps toward
educating publics about the harm of riba-based structures, an argument that is already
widespread in Muslim societies.
One of the catastrophes of the post-Bretton Woods order is that it has virtually wiped out the
potential for infrastructure development internal to nations. Factors that contribute to this reality
include the notion that state intervention is a sign of socialism that floating exchange rates make it
impossible to invest in long term infrastructure projects and that interest payments on such projects
make them unfeasible. These factors have created a world where physical development is virtually
nonexistent. In the United States a huge disintegration of infrastructure is present. A recent
evaluation by The American Society of Civil Engineers gave infrastructure in America a grade of
34
http://islamiccenter.kau.edu.sa/7iecon/Ahdath/Con06/_pdf/Vol1/14%20Rodney%20SHAKESPEARE%20Non-
interest.pdf
"D" and stated that “U.S. roads, airports, schools, levees, dams, and other infrastructure are in
overall poor shape and require a $2.2 trillion investment to bring them up to par. 35” Obviously the
banks are not allocating resources efficiently where they are needed.
The predominance of speculative financial products has destroyed real economic development and
largely because banks are given ultimate authority over allocation of resource. The use of interest-
free endogenous money creation allows the government to play a larger role in determining where
resources are allocated and adds a creative dimension to policy formulation; as the components of
aggregate demand (consumption, investment, government, and exports minus imports) can be
targeted for specific stimulus of real economic variables. Projects can utilize already existent
structures from the Islamic finance sector in order to return initial investment via user fees or profit
sharing agreements. Additionally projects may prove to be a prerogative of the people where
democratized project proposals and collaboration were inserted into the overall process.
The currency of a country under private central banking becomes a debt instrument of a banking
cartel and not a productive power of sovereign government expressing the will of the people. In
place of the networks of privilege that presently represent a social fabric of nations; the use of
Islamic endogenous loans can link all sectors of society. Demand is no longer determined by
interest rates set by either a monetary authority (exogenous) or by the demand for loans in the
banking sector (endogenous). Instead money is part of a holistic relationship based on the real needs
of society as a whole.
Riba-free, endogenous loans are a means of monetary intervention for funding physical products
deemed necessary and useful and directed at projects that would facilitate productive infrastructural
development or productive economic activity. If conducted effectively then from the banks that
administer the funds to the workers building the projects on the ground a new money multiplier
effect in the short term would persist within the society akin to Keynesian stimulus. However
because the issuance of sovereign credit is not mere insertion of fiat money into the system and
instead is a loan that must be paid back overtime then there is no hyperinflationary risk whatsoever.
The widespread adoption of such practices could restore the relationship and measurability of price
under the quantity theory of money and any temporary increase in money supply that leads to a
long-term increase in productive activity could ultimately prove counter-inflationary in the long run
as the money is paid back and cancelled from circulation yet development and a boost in productive
activity remains. With the power to create credit being returned to sovereign status and with the
interest free principles associated with such loans creating legal and institutional barriers to
corruption and fraud, the whole economy can benefit and a return to concentration on the real
economy may be realized. .
In an interview on February 22, 2010 Egyptian Finance Minster Samir Radwan reported that the
government was planning a stimulus package for the economy due to the effects of the political
unrest. He stated that he did not know exactly what the package would look like but emphatically
stressed that, "The whole issue of fiscal space is becoming a bit tighter because of the emergency
measures we have taken in the past three weeks." His conclusion, "Therefore we have to draw on
the private sector." He then added that Egypt wanted to draw on help from "our development
partners.36" Of course these quotes merely portray the reality that as things stand now Egyptian
participation in the international monetary system will continue unabated.

35
http://www.infrastructurereportcard.org/
36
http://www.reuters.com/article/2011/02/22/us-egypt-finance-idUSTRE71L4ZA20110222
In Tunisia the Central Bank announced on the same day that it was developing a “Civic Fund,”
targeted at collecting resources from donations and contributions of private individuals and legal
entities to use them in financing regional development projects and directly in the form of social
assistance (CITE)” Essentially this is an example of repeating a process of relying on international
aid for development, something that has never shown promising results at all. With riba-free
endogenous loans there is no need for such proposals.
Any public works projects in these societies would generate the results they are trying to attain by
other means. In Tunisia there is a possibility for developing roads and highways, hospitals,
technological infrastructure, transforming agricultural yields by inserting industry over arable land,
running irrigation ditches, developing factories, industry and etcetera. In Egypt the ability to
improve the Suez Canal region, alter agricultural processes, improve refining capacities or increase
similar infrastructural deficiencies is present as well. The ultimate and ideal project would be a
collaborative effort between the two constructing high speed railways from the Mediterranean ports
in Tunisia to the Suez Canal over a generation. It is interesting to note that this project would have
to run through Libya a country in civil war now thus presenting the opportunity to connect national
struggles to region wide interest, garner support from dissenters within the Qaddafi regime and earn
the backing of other countries in the Muslim world.
All of these projects would provide immediate stimulus, employment and alter the physical and
social landscape while utilizing the talents of the Egyptian and Tunisian populations. All of these
can be conducted absent international debt, interest payments to a central bank, or foreign
dependence. If applied to Egypt and Tunisia the use of interest-free endogenous loans via sovereign
credit represents a truly revolutionary next step in taking the fire from the gods of monetarism,
advancing the understanding, study and awareness of interest-free economics and returning an
understanding of finance and economics in ways that connect the governments, banks and people
and end the authoritarian relationships that are produced and in fact necessary for the present
practices of the banking system to continue.
8. Towards an Interest-Free Economic Order
Have you not turned your vision to one who disputed with Abraham about his Lord because Allah
had granted him power? Abraham said: "My Lord is He Who Gives life and death." He said: "I give
life and death". ~Holy Quran 2:258
He is the only One who controls life and death. To have anything done, He simply says to it, "Be,"
and it is ~ Holy Quran 40:68
The power to create money and issue it through the banking sector while charging interest even to
the very governments currencies are to represent makes monetary reform absolutely essential
everywhere. The creation of previously non-existent purchasing power is akin to the creation of
something from nothing and in a sense can give life or death to whole nations, their people, and the
general environment.
The uprisings witnessed today are very similar to the Asian Financial Crisis of the late 1990’s,
another consequence of contemporary globalization. The Indonesian experience is pertinent; as the
crisis there developed, Indonesian President Suharto agreed to the international monetary dictate to
repeal subsidies, implement austerity measures, and open up the Indonesian economy to further
foreign penetration (Pincus, 1998, p. 723-26). This led to widespread discontent and subsequent
protests and by May 1998 President Suharto stepped down after thirty years in power and support
unto the end.
The World Bank lent Indonesia a total of $30 billion in the course of Suharto's three decades of rule.
In 1998 World Bank resident staff in Indonesia estimated that, "at least 20-30 per cent of the
Government of Indonesia’s development budget funds are diverted through informal payments to
government staff and politicians, and there is no basis to claim a smaller 'leakage' for Bank projects
as our controls have little practical effect on the methods generally used," documenting knowledge
that World Bank loans were being embezzled and showing that nothing was done to stop what was
in plain view. Today the people of Indonesia are still paying back the debt on billions wasted before
the eyes of the transnational lenders.
Post-revolution Indonesia is more democratic in political structure but these transformations have
hardly altered the economic landscape. The country continued to adhere to international financial
norms. A study reported that, “the policies to overcome the crisis are continued from the last period
of the Suharto rule, under the support system of IMF and Consultative Group on Indonesia 37.”
Further research indicated “that almost every large scale development project in Riau has a Suharto
family member or crony involved in it. This is still the case despite the Fall of Suharto in 1998.38” It
is safe to say that efforts at reform in this crisis face the same dilemma. Were there genuine reform
along monetary lines, other countries could easily follow and a major step in the movement for a
new and just international economic order could be formed.
Inserting the concept of endogenous ribaa-free loans at this ground-breaking time represents a major
opportunity to advance practical efforts toward transforming the riba-based monetary system and
creating more horizontal relationships throughout the world. Since around 2002 serious momentum
has been building for the use of a gold dinar in international trade. The primary proponent of such a
call is former Malaysian Prime Minister Mahatir ibn Mohamad and it has the potential to challenge
the fiat order altogether by restoring the principles of a gold reserve system and not a direct gold
standard. Dr. Mahatir has explained that, "Gold prices can also be manipulated, but not as easily as
the U.S. dollar or other currencies.... Speculation and manipulation will not be as easy as when local
currency is valued against the U.S. dollar." Introducing the concept of administered, riba-free
endogenous loans represents a necessary component of reforming national practices so that they can
move away from contemporary norms. Therefore the implementation of the policy outlined in this
paper has broader ramifications for efforts toward creating a riba-free world.
In his work The Lexus and the Olive Tree, Thomas Friedman belittled Dr. Muhatir’s call as
nonsensical conspiracy theory and hopeless in the face of the triumph of American globalization.
He said, “Ah, excuse me, Mahathir, but what planet are you living on? You talk about participating
in globalization as if it were a choice you had. Globalization isn't a choice. It's a reality. There is just
one global market today, and the only way you can grow at the speed your people want to grow is
by tapping into the global stock and bond markets, by seeking out multinationals to invest in your
country and by selling into the global trading system what your factories produce.”
Today it is fairly conclusive that Dr. Muhattir successfully saved Malaysia from a speculative
currency attack during the 1997 Financial Crisis by not adhering to international norms. As a result
capital controls once considered obsolete by the IMF are back in vogue; a recent IMF staff position
paper admitted that capital controls “can usefully form part of the policy toolkit to address the
economic or financial concerns surrounding sudden surges in capital. 39” other research claimed the
capital controls of Malaysia “produced faster economic recovery, smaller declines in employment
and real wages, and more rapid turnaround in the stock market. 40” Thomas Friedman must have
wondered as this crisis set whether his proclamation of victory was premature. Today as monetarists

37
http://www.ide.go.jp/English/Publish/Download/Papers/pdf/04.pdf
38
http://www6.cityu.edu.hk/searc/Data/FileUpload/220/WP31_02_Wee.pdf
39
http://www.imf.org/external/pubs/ft/survey/so/2010/POL021910A.htm
40
http://www.nber.org/papers/w8142.pdf
try to preserve a model that has actually blown apart, the necessity that new thinking challenges
convention is of utmost importance.
There is little effort to connect the political alterations of today to structural economic realities. This
paper presents concrete alternatives and highlights fundamental principles that must be addressed
by any movement today seeking real reform. It must be recognized that endogenous, riba-free loans
are a means of providing immediate relief to some of the causes of the present unrest (inflation,
unemployment, corruption) and reestablishing a connection between money supply and the real
economy. Perhaps most importantly however they represent a leeway into an expanding
conversation with regard to the development of a truly riba-free alternative. If implemented, then a
step will be taken toward establishing alternate forms of globalization apart from the golden
straitjacket. Absent inclusion of monetary alteration, any and all reform will prove insufficient. The
solution is simple and creates the possibility that present political alterations may separate
holistically from a dictatorship that knows no nation, recognizes no moral values and controls the
imperialist machine largely through the riba-based monetary system.
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