Precious Metal Backed Cryptocurrency in Islamic Finance

Abstract

Scholars of Islamic Economics and Finance are increasingly exploring the suitability of digital monies in Sharīʿah compliant transactions.  This research looked at the suitability of precious metal-backed cryptocurrencies (PMC) that are expected to offer stability in the finance and banking space. The objective therefore is to provide justification that developing a gold backed and Sharīʿah compliant cryptocurrency products is feasible.  Literature research  method was employed, and the major findings are: there is enough evidence that gold is accepted in financial markets as a hedge against inflation and stock crisis in the long run and as a safe haven in the short run; co-existence between commodity-backed and unbacked (fiat) currencies is feasible.  The key recommendations are: development of gold-backed and Sharīʿah compliant cryptocurrency products aimed to enhance portfolio qualities by securing assets investments against inflation, as well as establishing exchange rates and price level stability leading to real output growth; to encourage additional works that would seek to explore more opportunities in advancing the relevance of Sharīʿah compliant financial products that are necessary complements to the workings of the PMC; finally, relevant issues critical to the long run stability of the Islamic finance market should be addressed, especially issue with regard to regulations, the payment and settlement issues, and auditing & transparency, among others. It is also anticipated that a precious metal backed cryptocurrency should offer alternative to mitigate currency volatility currently suffered by both conventional cryptocurrencies and regular fiat legal tenders. In this regard, therefore,it is recommended that further studies on the legal framework on deployment of precious metal backed cryptocurrencies need xto be conducted.