Policy Regarding Crippling Rises in Prices
February 2013 CE, Rabi-ul Thani 1434 AH

Hizb ut Tahrir / Wilayah Pakistan has issued the following Publicized Policy Position (PPP), over the great increases in prices, particularly over the last decade, from the time of the Musharraf-Aziz regime until the Kayani-Zardari regime, that have broken the backs of the people.

 A. PREAMBLE: The huge and constant rise in prices is due to currencies that reduce their values constantly, as they are not based on gold and silver

Like other currencies, the Dollar, the Pound and the Franc, originally, the Rupee was backed by real tangible wealth in the form of a precious metal. In the case of the Dollar, it was gold, in the case of the Rupee it was silver. This system stabilized the value of the monetary unit both internally within the country and externally in international trade. The evidence for this was that the standard prices of gold in 1910 were almost the same level they were in 1890. Today, there is sufficient gold and silver in the world to support the actual economy, transactions such as buying and selling food, clothing, shelter, luxuries, manufacturing machinery and technology and so on. However, due to capitalist practices, the demand for the creation of money outstripped the supply of gold and silver. The states abandoned the precious metal standard, so that currency became backed only by the authority over the state, allowing more and more notes to be printed, without being backed fully by gold and silver, such that each new note has less value than previously. However, money is used to buy commodities and services, so the money became worth less, if not almost worthless. More of it was needed to buy, so the price of all commodities and services began to rise. Continuous rises in price is now so much part of the system that inflation is a widespread measure of how fast they are rising. Thus, the rupee that was once worth over eleven grams of silver before the British occupation, after over two hundred years of the capitalist system is now worth around one nine hundredth's (1/900th) of a gram of silver. Before America's war on Muslims in Afghanistan and Iraq..., 30.97 Rupees were needed to buy a single US Dollar, and then during the Musharraf-Aziz regime on Friday 15 August 2008 it rose to 76.9 Rupees with inflation in Pakistan at its highest ever in 30 years. And now in January 2013, under the Kayani-Zardari regime over 98 Rupees are required to buy a single US dollar. With each passing year, the Rupee is worth less and can buy less with huge increases in prices, such that buying meat is beyond the reach of most, fruit is a luxury and vegetables are becoming a great burden. Today, the Rupee is worth less than a Paisa was a few decades ago. Despite the false reassuring claims of the government to the contrary, the Rupee is collapsing constantly, which is leading to huge increases in prices. Yet, the government continues to print more and more money unheeding of the dire consequences, busily digging a grave for the lifeblood of the economy, its currency.

B. POLITICAL CONSIDERATIONS: Addressing factors leading to the demand for the creation of money, beyond the gold and silver supply

B1. Inflation is a direct consequence of interest-based loaning. Capitalism mandates interest rate manipulations to control the economy. The privately-owned banks use depositors' money and deposit it with Pakistan's state bank in special accounts to earn higher rates of interest. Historically, between 1992 and 2013, the average interest rate has been 12.75%. As the State Bank does not have surplus money to pay back the interest to the private banks, it "creates money" by printing more, in order to pay interest to the depositing banks. The private banks then receive money in the form of interest from the State Bank and use it to pay their depositors at a slightly lower rate of interest and pocket the difference as profits. So instead of reducing inflation, interest itself is a cause for it as it forces the creation of more money, of less worth. Were banks not privately owned, there would be no need for them to regard loans as a "business" and seek "profit" on loans through interest. Thus, in capitalist banking, whilst a thin slice of society benefits immensely, most of it is reels under the shocks of "bunya" interest based-loans, reduced spending, loss of value of the Rupee, price hikes, closure of businesses and unemployment, all in a continuing spiral of economic destruction.

B2. The capitalist balance of trade policy through devaluation of the Rupee also leads to inflation. Being a net importer country with a weak manufacturing base, Pakistan's capitalist government oversees the devaluation of the Rupee, in accordance to IMF orders. This was claimed to be primarily done to address Pakistan's balance of trade. This is where the state actively discourages the import of goods and encourages the export of domestic goods. However, by devaluing the Rupee, the Pakistani government increased the costs of manufacturing inputs, which caused havoc in the agricultural, textile and other sectors that were already reeling from the policy of high interest rates. Hence, the high cost of borrowing, together with the increase in manufacturing costs, rendered many industries and companies unable to compete internationally. Incapable to find buyers for their expensive products, key exports declined and Pakistan's balance of payments deteriorated. This was further compounded by the continued import of basic food stuffs.

Despite being the fourth largest agricultural economy in the world, Pakistan is a net importer of foodstuffs. This means Pakistan must pay more for its food imports (after devaluation), thus causing domestic food inflation to greatly rise. In recent years, food inflation has been made worse by the declining value of the Dollar and the Pakistani Rupee's peg to the dollar. To conceal the failure of its devaluation policies, the Pakistani government has relied more and more on expatriate remittance and the export of domestic staple foods to boost Pakistan's balance of payments. The latter is particularly cruel for the Pakistani population, as in a desperate bid to earn foreign exchange and improve the balance of payments, the Pakistani government exports much needed staple foods, such as rice and wheat, which leads to shortages at home. Moreover, the hard earned foreign exchange is not re-invested back into the domestic economy, but is repatriated in the form of debt service payments to strengthen foreign economies. Thus, the Pakistani government is forced to borrow from international institutions to redress a shortfall in balance of payments compounding its problems. These new loans come upon interest, such that Pakistan, like most "developing" countries have paid back the principles several times over and are actually never allowed to "develop," because these loans come with conditions to strangle the economy, ranging from interest-rates, devaluation of currency, as well as a whole host of fetters on agricultural and industrial growth.

B3. Return to the gold and silver standard for Muslims is eminently practical. The lands of the Muslims in which the Khilafah "Caliphate" state is likely to arise contains a lot of gold and silver resources, such as the Sandaik and Reko Diq fields in Pakistan. The Ummah possesses great resources that are direly needed by other countries, such as oil, gas, coal, minerals and agricultural commodities, which can be used to exchange for more gold and silver. The banks in Muslim Lands have international currency as Forex holdings, such as the Dollar, the Euro and the Sterling which can be used for exchange as well. The Muslim Lands are self-sufficient in basic commodities, so the real economy is stable and resistant to manipulations and speculation, once the parasite economy is abolished.

C. LEGAL INJUCTIONS: Pertaining to restoration of the gold and silver standard

C1. Islam has mandated that the currency of the state is backed by precious metal wealth, ending the root cause of inflation. RasulAllah (saw) commanded the Muslims to mint Gold Dinars, weighing 4.25g, and Silver Dirhams, weighing 2.975g, as the currency of the state. This is why the Khilafah "Caliphate" enjoyed stable prices for over a thousand years. Today the Khilafah "Caliphate" will employ exchange of commodities, such as copper, and foreign exchange for gold and silver and will be mindful of net outgoing of gold and silver during international trade, though the Muslim World is self-sufficient in most matters. Moreover, re-establishing gold and silver in international trade will end the unfair disadvantage that America has by imposing the dollar on international trade. As Hizb ut Tahrir has adopted in its Introduction to the Constitution, Article 166, "The State issues its own independent currency, and it is not permitted for it to be linked to any foreign currency." In Article 167 it has adopted, "The currency of the State is to be restricted to gold and silver, whether minted or not. No other form of currency for the State is permitted. The State can issue something as a substitute for gold or silver provided that the Bayt al-Mal has the equivalent amount of gold and silver to cover the issued coinage." In Article 168, it has adopted, "It is permissible to have exchange between the State currency and the currency of other states like the exchange between the State's own coinages."

C2. Bayt al-Mal in the Khilafah "Caliphate" will be a financial institution to support the growth of the real economy, including agricultural and industrial development. It is not a parasite that bleeds wealth from the economy through Riba, as the current private banks have become, creating the need for constantly expanding monetary supply, loss in value in the currency and the resultant increase in the prices. Its sole focus will be to develop a vibrant and powerful economy, by using loans to stimulate the local agricultural and industrial sectors. As Hizb ut Tahrir has adopted in its Introduction to the Constitution, Article 169, "It is completely prohibited to open banks, and the only one permitted will be the State bank, and there are no transactions upon interest. This will be dealt with by a particular department of the Bayt al-Mal."

C3. Rather than destroying the economy and then going cap in hand for more loans, the Khilafah "Caliphate" having established Pakistan on a firm footing, will raise a global cry for the end of the injustice of Western colonialist interest based-loaning with condition. It is this unjust system which prevents countries from standing on their own feet, with suffocating conditions, even though they have bled the principle loan several times over from their economies, in the form of interest. As Hizb ut Tahrir has adopted in its Introduction to the Constitution, Article 165, "It is confirmed by the senses and by information whose authenticity is trusted that the use of foreign funds for development in the country is the method to extend the influence of the disbelievers over them, and extending their influence in the land is haram."

Note: Please refer to the following articles in Hizb ut Tahrir's Introduction to the Constitution, for the complete evidences from Quran and Sunnah: 165, 166, 167, 168, 169

D. POLICY: Propelling the Khilafah "Caliphate" as the economic model for the world

D1. Strengthening and stabilizing the currency by backing it with real wealth, gold and silver, to end the generalized inflation, which has crippled households, industry and agriculture, once and for all.

D2. Ending the "business" of private interest-based banking and re-introducing interest-free state banking so as to fuel a vibrant economy, steered by creative and supportive financing of the agricultural and industrial sectors.

D3. Working for the eradication of the colonialist loans and conditions globally, that has reduced the world's most resourceful nations to the state of beggars.

For Press Release: Click Here
Hizb ut Tahrir / Wilayah Pakistan Issues Policy Paper on Inflation
Only the Khilafah "Caliphate" will Eliminate the Menace of Ever-rising Inflation