Islamic Finance and the New Financial System: An Ethical Approach to Preventing Future Financial Crises

Chapter 10Preventing Future Crises—Real-World Solutions from Islamic Finance

With a better understanding of Islamic finance and a look back at the history of money, financial systems, and financial crises, let's see if there are any lessons to be learned from Islamic finance. I'm not suggesting that Islamic finance take over the global financial system, but I would like to see its concepts and philosophy become accepted as offering ethical solutions to issues we face repeatedly in our financial system.

Before looking at possible solutions, we must first define the problems in our current system and understand why we keep going from crisis to crisis. We must also look at the reasons these crises are increasing in severity and why nothing has been done so far to fix the problems. The big question in the end is, what will it take for our financial system to change? Once these questions are addressed, we can see what solutions, if any, Islamic finance has to offer.

In Part I, I covered the history of money, past financial systems, financial crises, and the buildup to the next major crisis. The main cause of the boom-and-bust cycle of our financial system is the foundation upon which it is built. If the foundation is bad, the entire system is bad and can be fixed only if the foundation is replaced. The foundation of our financial system is money—fiat money—which is supported by the ever-growing mountains of debt. Our fiat money system is held together only by government promises. ...