Digital Currencies and Their Compatibility in the Islamic Finance Industry

Abstract

The chapter is devoted to the in-depth analysis of the compliance between the Shari’ah rules and digital currency within the context of Islamic finance. The emergent trend of digital currencies, especially virtual based as in the case of Bitcoin, has raised questions on the issue of their compatibility with ethical and legal moral rights. The paper covers core issues like Shari’ah implementation, the utilization of tangible assets, crypto as a medium of exchange and some obstacles in merging crypto into Islamic banking. Besides that, the paper outlines workable solutions for overcoming these difficulties, including the introduction of Shari’ah-compliant cryptocurrencies, the development of a regulatory framework and the need for enlightenment and collaboration. Furthermore, the manuscript will exhibit some Islamic-centric digital currencies, e.g. the Islamic Coin and OneGram, to illustrate that a successful integration into Islamic finance is possible. Furthermore, future estimations consider the implications of central bank digital currencies (CBDCs) in Islamic finance which brings up both opportunities and challenges. The conclusion calls for ongoing research and innovation spanning traditional as well as digital (cryptocurrencies) in order to achieve Shari’ah harmonization and eventual evolution of the Islamic finance sector.

Citation

Smolo, E. and Mahomed, Z. (2024), "Digital Currencies and Their Compatibility in the Islamic Finance Industry", Smolo, E. and Raheem, M.M. (Ed.) The Future of Islamic Finance, Emerald Publishing Limited, Leeds, pp. 189-206. https://doi.org/10.1108/978-1-83549-906-120241012