Paper Currency, Banking, and Islamic Monetary Debates in Late Ottoman and Early Saudi Arabia

In: Journal of the Economic and Social History of the Orient
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Abstract

This article examines the Saudi government’s refusal to introduce paper currency until 1956 against the backdrop of two developments: First, the composition of a number of treatises written by Muslim scholars in the late Ottoman and early Saudi Hijaz and Najd permitting use of the medium; second, the unsuccessful effort by several Muslim entrepreneurs to create formal banking facilities in the Hijaz between the 1920s and 1950s. Throughout these decades, as the Saudi regime repeatedly claimed that paper currency violated Islamic orthodoxy because it was a bearer of interest, these scholars argued forcefully for the medium’s legitimacy by mobilizing the legal sources of their particular school of law (madhhab). This contrast reflects how the religious politics of the kingdom departed from both Ottoman precedents and other contemporary Islamic contexts in which paper currency was widely assimilated via the assent of Muslim legal scholars. The regime’s tepid support for, or outright obstruction of, the creation of formal banking facilities that issued paper currency further exacerbated this divergence. In the end, because of such inconsistency it required technocratic institutions like the IMF and ARAMCO to introduce paper currency and a formal banking system into the kingdom from the mid-1950s.

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