Islamic Banking and Virtual Currencies: Between Shariah Assessment and Future Prospects

Abstract

This study intends to highlight the nature of digital and virtual currencies, their system, and their usage mechanisms in an attempt to build a foundation for them from a Shariah perspective, as well as determine the juristic position concerning their permissibility. It also intends to highlight some of the major challenges facing Islamic banking institutions with regard to digital currencies, as well as determine the level of the digital currency system’s compliance with the economic system as a whole, and the Islamic banking system in particular. Moreover, the study assesses the capability of Islamic financial institutions to adapt to the dynamic pace of technological advancements that are currently revolutionizing the global financial sector. In this context, the study employs a qualitative method, relying on a content analysis of previous studies on Islamic banking and virtual currencies to develop a forward-looking perspective on the possible integration of these currencies in the operations of Islamic banking, wherever possible, as well as possible channels for their investment. Ultimately, the study seeks to eliminate the confusion surrounding the use of such virtual currencies, as well as the permissibility of engaging in such currencies and the means through which they can be invested. Based on the study’s findings, the study concludes that digital currencies represent one of the modern nawāzil, which have generated extensive juristic debate in the modern era. Many scholars have shown inclination towards prohibiting the use of digital currencies, particularly due to the lack of an essential condition, i.e., the issuance of such currencies by an established central authority. In theory, Islam permits any form of currency that meets the essential Shariah requirements, as confirmed by fatwas issued by Shariah authorities in various Muslim-majority nations.