386 chapter nine
(Al-Zoibidy, 2002). The aim of the GCC states is to achieve mone-
tary union by 2005 and for a single currency, probably designated
as a dinar, to replace the six existing currencies by 2010.
There are no simple short-term solutions to these potential problems.
In the longer term if more Muslim countries with significant exports
of manufactured goods and earnings from services adopted the new
currency and it evolved from being a Gulf dinar to a true Islamic
dinar, the relationship between the exchange rate and energy prices
would weaken. The foreign exchange earnings of the Islamic dinar bloc
would then become more diversified and balanced, helping currency
stabilisation. There would be real incentives for diversification, both
in terms of widening the currency bloc through the admission of
new members, and for deepening in terms of building up the export
and service sector earning capacity of existing states in the bloc
(Wilson, 2004).
Indexation
The concern about indexation is twofold: firstly, to ensure that justice
between the lender and borrower is observed, and second, to ensure
that business arrangements are still valid. The answer to the second
question has been much easier than the first, and this is that the
fluctuation in the value of money does not affect the validity of busi-
ness contracts, which are held to be legal despite such changes. In
these arrangements profit-loss-sharing is the basis of the relationship
in businesses and the fluctuation in the value of money would affect
partners in the manner they agreed upon at the initiation of the
business—no harm or injustice applied to any. But the case of lending
is a more complicated issue. In the absence of interest rates that
may compensate the lender for the reduction in the real value of a
loan at the maturity date, in case of inflation, the lender in Islam may
be unfairly treated. He is getting his loan back at a less real value of
money than that at the time of granting the loan. To treat him fairly,
the argument goes; he should be compensated by an amount equal to
the reduction in the real value of money. This compensatory amount
should be paid to him by the borrower. The amount of compensation
would be equal to the reduction in the real value of money between
the two dates: the date of receiving the loan and the date of pay-
ing it back. If no compensation is given by the borrower, the lender
would be penalized for giving an interest-free loan (qard Œassan).