Dear brothers and sisters, November 8, 2008;
Assalaamu Alaikum Wa Rahmathullahi Wa Bharakhathuhu.
http://www.bloomberg.com/apps/news?pid=20601109&sid=ayE0YPzpdD38&refer=home
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Yesterday's cuts by the Bank of England and European Central Bank, which came with the Federal Reserve and Bank of Japan on the cusp of zero rates, are a bid to shock life back into their recessionary economies and strained money markets.
... ``It's the race to zero,'' said Stewart Robertson, an economist at Aviva Investors Ltd. in London, which manages about $230 billion. ``There's no obstacle to more rate cuts.''
The action in Europe, which extended to reductions in the Czech Republic, Switzerland and Denmark, followed decisions last week by the Fed to drop its key rate to 1 percent, matching the lowest in a half-century, and the Bank of Japan to cut to 0.3 percent in its first paring in seven years.
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Usury is understood to be high interest rates and thus at zero percent interest the banks are not usurious. The answer is NO. They are still usurious! How?
http://en.wikipedia.org/wiki/Reserve_requirement
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Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the change in excess reserves of $90 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000), e.g.$100/0.10=$1,000. In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of ($100+$80+$64+$51.20+...=$500), e.g.$100/0.20=$500. Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity.
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Does economic activity depend on 'money?' It depends on manufacture. We use raw materials, energy, and labor to manufacture a product of higher worth from those of lower worth and thus earn a profit. We also earn a profit when we buy say corn from the field and transport it to the market where it fetches a higher price. Money is after all an intermediary.
Now banks create money. What have they done to create that money? Just a few entries in the account books. Let us look at this scenario. I take 100 Dinars to a bank. I deposit that in my account. The bank gives me a loan of 90 Dinars at zero percent interest. I deposit that in my account, and have 190 Dinars with me. The bank gives me a further loan of 81 Dinars on this deposit of 90 Dinars. I continue this cycle of borrowing and depositing. If I do this 43 times, my account has 999 Dinars, and I owe the bank 899 Dinars at zero percent interest.
I use the 999 Dinars for business, earn profit and pay back the bank the loan of 899 Dinars. What is the work done by the bank? It made account entries for 43 times when I borrowed, and possibly once when I returned the 899 Dinars in one transaction. So just for making 44 entries in account books the bank has earned 899 Dinars! Is this not usury?
Of course in real life, instead of the depositor getting successive loans, different persons receive the loan from the bank. The bank is usurious because it creates money.
Let us consider the situation at the time of Prophet Muhammad, peace be upon him. Then 1 Dinar was a gold coin. Thus if a Companion, Allah be pleased with him, collected Dinars from the wealthy and loaned the Dinars to the needy, how many Dinars could he create? None. Because gold is created by Allah Subhana Wa Taala alone, the Companion, Allah be pleased with him, created nothing.
The permission to create money given to the banks raises them to be equal to Allah Subhana Wa Taala. Could we accept that?
The only way of getting Islamic banking is to deny the power to create money to the banks. That is, the reserve ratio should be 100%.
Ya Allah guide us to change the banking system so that they create zero money and lend money as a partner in business accepting loss and gain in the business. Aameen, Aameen, Ya Rabbil Aalameen.
Allah Subhana Wa Taala knows best.
Your brother,
Mohideen Ibramsha
Was Salaam