A gold standard international payments system anchored in Islamic finance

Historically, gold was the natural money chosen by markets for domestic and international payments. Conventional banking and financial crises led to the abandonment of gold. The post-BrettonWoods inconvertible paper system was quickly marked by inflation and economic disorders. The 2007-2008 financial crisis, its bailout cost, and ensuing economic stagnation have demonstrated the unsustainability of the current financial system. This paper explores a restoration of a gold standard based on premises of Islamic finance and a subdivision of banking into two subsystems: (i) 100-percent depository banking; and (ii) equity-based, risk-sharing investment banking. These same conditions have been deemed by many writers as necessary for the stability of the gold system.