Source & Credit: Al Islam | Ahmadiyya Muslim Community
By Dr. Iftikhar Ahmad Ayyaz
The global credit crunch was caused by many factors. But its roots lie in the very structure of the modern banking system. The principle of modern banking was first started by Goldsmiths many centuries ago. At that time, Goldsmiths would keep gold safe for wealthy merchants and give them notes of ownerships to exchange at other Goldsmiths branches in distant countries. These were the beginning of the first banknotes.
As the banking system developed, it became apparent that on average, depositors usually extracted some 10% of their gold out during any one year. The rest was saved with Goldsmiths.
Since they generally kept 90% of the Gold, Goldsmiths began to lend out the remaining gold at interest which created profits from the merchants gold deposits.
The gold was lent out and interest was charged on such loans. The interest and capital repayments were secured on property. Essentially, this created money from nothing by satisfying the need for capital on the basis that it would be returned in the form of a healthy interest based profit. This was the beginning of modern banking. It created the ability to make money from money itself. A principle that was prohibited both in Christianity, as a prohibition on usury and in Islam.
This basic principle of creating money from money has continued with minimal regulation, and is the basis of how the financial crisis came into being. [...more]
Read the complete article: Islam’s Response to the Global Economic Crisis
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