Dubai is the top center for gold trade in the Middle East.
In Dubai’s old gold market, buyers from around the world argue over prices for jewelry. But in other parts of the United Arab Emirates (UAE), the metal is becoming important in financial engineering.
A local start-up company is offering a gold-backed cryptocurrency. The company, called OneGram, opened last year. Its offer is part of efforts to persuade Muslims that cryptocurrency investments are acceptable under Islamic law.
The worldwide interest in bitcoin and other cryptocurrencies has moved into the Gulf and Southeast Asia, the main centers of Islamic finance. But many Muslims are uneasy with such investments because they are products of financial engineering and objects of risk.
Islamic teachings ban interest payments. These teachings note the importance of real economic activity based on physical possessions, but disapprove of monetary speculation. That has led to a debate among Islamic experts over whether cryptocurrencies are religiously permissible.
Cryptocurrency companies are seeking ways to influence the debate. They have released products based on physical objects, such as gold, that are recognized by Islamic advisors.
OneGram says each one of its cryptocurrency units is backed by at least a gram of physical gold stored in a safe place. The idea is to limit speculation.
“Gold was among the first forms of money in Islamic societies.” said Ibrahim Mohammed, the Briton who founded the company with other investors last year.
To date, tens of millions of dollars worth of the currency have been offered for sale. About 60 percent of the planned number of coins remains to be sold; OneGram hopes to issue them all before listing them on financial exchanges around the end of May.
OneGram received a ruling that its cryptocurrency is acceptable under Islamic teachings from Dubai-based Al Maali Consulting.
It is one of many businesses that offer their opinion on whether financial products meet Islamic teachings.
In Malaysia, HelloGold offered its first gold-backed cryptocurrency in October, after receiving approval from Islamic experts at Kuala Lumpur-based Amanie Advisors.
Manuel Ho, HelloGold’s chief marketing officer, said its coin was Islamic as buying and selling takes place within a defined period, making the currency less speculative.
Only about 20 to 30 percent of banking in the Gulf and Southeast Asia follows Islamic teachings. Many Muslims use more traditional finance if it offers higher rates of return or ease.
But the issue of religious permissibility is important and could decide whether Islamic banks and financial businesses use cryptocurrencies.
“One of the biggest difficulties is that there is so much to talk about (cryptocurrencies),” said Ziyaad Mahomed of HSBC Amanah in Malaysia. Mahomed chairs a committee that oversees Islamic financing. He added that no one knows the future of cryptocurrencies.
In other countries, Islamic experts have yet to rule on whether cryptocurrencies are permissible. Several international groups have suggested rules for Islamic finance, but none has the power to fully enforce them. Many governments are worried about the possibility of market instability, but are unwilling to lose the chance of profiting from the new technology.
The Saudi Arabian and UAE central banks warned their citizens about the risks of trading bitcoin, but have not banned them.
That leaves Islamic investors to choose between sometimes conflicting judgments by experts at advisory services and at universities.
One of the earliest rulings came in 2014, when California-based professor Monzer Kahf, a writer of Islamic finance books, called bitcoin an acceptable form of exchange.
Since then, Islamic experts in South Africa have ruled in support of cryptocurrencies. Those experts argue they have become socially acceptable and commonly used, said Mahomed.
Another problem is that many Islamic experts find it difficult to understand the complexities of digital currencies, said Harris Irfan, managing director of Cordoba Capital in London. He says investors should be careful when listening to the experts because that part of Islamic law is very complex.
Mahomed said there has been some level of agreement that cryptocurrencies are a form of wealth – a move toward acceptance.
But experts have yet to rule on whether cryptocurrencies are, in fact, a form of wealth. This is important for Islamic tax payments, called zakat, and for passing down wealth from one generation to the next.
I'm Susan Shand.
This story was reported by Reuters. It was adapted for VOA by Susan Shand and edited by George Grow.
Words in This Story
cryptocurrency – n. a money that only exists electronically
speculation – n. ideas or beliefs about something that is not known
unit – n. a form of measurement; a single thing, person or group that is part of something larger
coin – n. a small, usually flat piece of metal used as money
instability – n. the state of being likely to change
digital – adj. of or related to computer technology