Can Cryptocurrencies Save Islamic Finance?

Frank Emmert

 

Abstract: Fiat currencies are structured to grow in volume but decline in value, necessitating interest or high profits in loan transactions to counteract the diminishing time value of money.1 Meanwhile, many conventional banks epitomize capitalism's excesses, prioritizing profit maximization and high-risk strategies, relying on taxpayer-funded bailouts when they become “too big to fail.”2 This undermines public welfare as taxpayers bear the costs through inflation and debt.3 Islamic finance, while sharing business risks and upholding ethical values, cannot fully escape fiat currency devaluation and avoids interest through complex, often economically suboptimal structures. Despite its moral and ethical orientation, Islamic finance sacrifices efficiency and shareholder value under fiat currency constraints. The solution may lie in 21st-century cryptocurrencies, which can be structured to retain purchasing power and align with ethical principles by excluding investments in areas like gambling, alcohol, and arms. Unlike fiat currencies, these cryptocurrencies offer consistent value, reducing the need for interest and complicated profit constructs, enabling socially responsible business models that maintain reasonable returns without prioritizing profit over ethical considerations.