A Legal Study of Lending Paper Money and the Impact of Inflation on it

Document Type : Research Article

Author

• Alī Akbar Īzadīfard

10.22067/fiqh.v0i0.3137

Abstract

Lending money to one another is one of the common transactions
among people. The borrowed property is sometimes in the form of the very property itself, such as gold and rice, and sometimes in the form of currency, i.e., paper money. Given the inflation issue and the decrease in the economical value of money, the lenders undoubtedly do not take back their money with the same economical value that they have lent it to the borrower the year before. To compensate the damage and to prevent the loss incurred, some believe that from the beginning the exchange of money for gold or for other goods can be postulated as a condition for lending money. Others have suggested the "purchase power" as a basis for paying off one's debt. Yet, others due to the symbolic nature of paper money believe that the same amount of money that has been borrowed is to be paid back; and, finally, another group have set forth the inflation rate as the basis for calculation.
In this article the above theories are dealt with and critically reviewed. The first and the second theories can be taken as suitable approaches. However, with respect to the nature of the loan contract which is based on risk (gharar), its philosophy which is rendering voluntary help and benevolence to the needy without expecting any benefits, and the lender's intention to acquire Divine pleasure and otherworldly reward, the third theory, i.e., the calculation of the inflation rate in lending paper money, would be in contradiction with the philosophy of loan. Paper money as being symbolic is also subject to more deliberation due to its credit value and has no application in paper money loan in view to the definition given for money; although, according to the advocates of this theory in order to compensate the decrease of the value of money a condition as to paying for the damage due to delay in payment can be stipulated in the loan contract, which is irrelevant to our discussion.
Keywords: loan, paper money, inflation, purchase power, payment, damage for delay, usury

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