Arab markets were flooded with new investors in April after an Islamic scholar announced cryptocurrency is halal under Sharia law. The announcement settled contradicting statements issued by several other Islamic experts, but there are still conflicting interpretations of Sharia’s allowance of virtual currencies among Muslim leaders.
The mufti’s announcement opened crypto markets to potentially 1.6 billion new customers, but it is certain that Middle Eastern governments will play a central role in the development of the crypto industry in order to ensure individuals and institutions adhere to Sharia law.
Sharia law places strict guidelines on economic activity whereby value must be attributed to real, physical assets. The highly contested religious law that governs the Islamic finance sector also prohibits market speculation and collection of interest on loans.
Muslim entrepreneurs, investors, and governments are intent on being leaders in the competitive global marketplace. As many advocate to replace the U.S. dollar as the global reserve currency, Bitcoin and nationalized cryptocurrencies may finally offer Muslim countries economic stability and leeway in Western politics.
It’s an unlikely coincidence that the Islamic Council on Sharia Finance broadly legalized gold ownership for investments around the same time that OPEC and Middle Eastern countries began moving away from the U.S. PetroDollar system in 2016.
Iran, which no longer recognizes or uses the U.S. dollar, and Turkey both announced plans to release government issued digital currencies following the pre-sale of Venezuela’s national, oil-backed currency Petro, earlier this year.
In fact, President Nicolas Maduro of Venezuela called on all 14 OPEC nations to develop a platform for trading oil-backed cryptocurrencies. Just as Venezuela launched its own cryptocurrency to circumvent U.S. sanctions, other oil-producing countries have hinted at abandoning the PetroDollar system that has been operating in the Middle East for over 40 years — threatening the global supremacy of the U.S. dollar.
The following assessment of cryptocurrency regulation in the Middle East is a part of a larger series of pieces evaluating regulation of the flourishing global fintech industry. Part one of the series looks at activity in Asian hotspots like Japan, Hong Kong, Singapore, and Taiwan, and how governments are facilitating or hindering growth.
Part two examines crypto regulation and the critical attitudes held by many European leaders. Part three analyzes the varying attitudes of Western leaders on the disruptive new technology, and how regulatory agencies in the Americas are preparing for mainstream adoption of cryptocurrency. Part four assess how African countries are embracing the economically- and politically-liberating force of cryptocurrency and Blockchain.