DAMIG’s Comments on the Afghanistan Bank Law

DAMIG’s Comments on the Afghanistan Bank Law General: It is clear that imperialist agencies or their sympathizers have been involved in the drafting of this Law. This is evident because: It describes the Islamic state as “transitional and envisages the collapse of the Islamic state and the coming into power of a “successor” state It refers continuously to “parliament” which does not and should not exist in an Islamic State. It advocates that all monetary transactions undertaken by Da Afghanistan Bank be riba/interest based It opens the door for imperialist presence in the Supreme Council of Da Afghanistan Bank by advocating the presence of non-Afghan citizens in it and in the Executive Board. It advocates Da Afghanistan Bank’s “autonomy which effectively means its subordination to global riba and gharar based markets. The Islamic government faces a major challenge in developing a monetary regulatory system that serves as a means for the consolidation of Islamic rule in Afghanistan. Ijtihad is needed in this regard because central banking has not existed in Islamic history while DAIMG is not competent to do comprehensive ijtihad in this area (which must be the responsibility of Ulema). We submit the following be taken into account in developing central banking legislation and monetary policy in Afghanistan. The objective of monetary policy in an Islamic state like the purpose of all economic policy is the creation of wealth for the promotion of the Islamic values (Sabr, Tawakkul and Infaq) among the people. It is this characteristic which distinguishes the Islamic economy from capitalism where capital accumulation is an end in itself. The evaluation of monetary policy measures must take into account the impact of money and credit creation and distribution on the Islamic consciousness of the users of money and credit. Special qualitative statistical techniques must be developed to asses this impact. This means that the Dawah effort must be fully integrated with monetary policy formulation and execution. Ulema and fuqaha must be members of Da Afghanistan Bank’s Supreme Council and Executive Board and Dawah Majlis must be established in all tamveeli institutions. The Islamic system for money and credit creation and distribution is tamveeli – not finance. Finance is a capitalist artifact where money is converted into capital through riba and gharar. There can be no riba and ghara focused financial system in an Islamic state.. Tamveeli operations function without riba and gharar. This means there can no money and capital market within a tamveeli system. Money is exclusively a means for the sale and purchase of real goods and physical services. It should be traded for itself. This means that open market operations (OMOs) and discount rates as conventionally defined cannot be monetary policy instruments – they both involve interest (riba). Nor can securities be continuously traded as these involves gharar (speculation). DAIMG has suggested: Instead of OMOs liquidity needs can be served through issuance of currency deposits by Da Afghanistan Bank without reference to its reserves linked to estimates of GDP growth.

Similarly rate of return on state borrowing through Da Bank Afghanistan should be determined with reference to qualitative estimates and forecasts of real GDP Currency and credit planning (instead of open money making operation) linked to national development planning should be the basis of liquidity provision within the economy. Da Bank Afghanistan should have exclusive control over the money supply. The supply of money should not be related to reserves of Da Bank Afghanistan (Gold, Foreign Currency Reserves etc.) but should be based exclusively on estimates and forecasts of gross domestic production. DAIMG has proposed that either all tamveeli institutions (Bank, non-bank be nationalized or a system of mosque based community banking be introduced. In either case 100 percent reserves ratio be institutioned so that Tamveeli institution create M2 and M3. All non-demand deposits of banks to be invested in wealth creation activities with depositors on the basis of musharka and modarba contracts. Since all existing global money and capital markets are riba and gharar focused Da Bank Afghanistan should avoid integration within them. This involves: Nationalization of foreign trade. All foreign exchange earned through exports should be surrendered to Da Bank Afghanistan which should allocate them through the banking system to importers in accordance with parameters set by the national development plans. The complete de-dollarization/de-rupeesation of the monetary system. No foreign currency to be allowed to coordinate in investment. No bank be allowed to accommodate foreign currency assets. No dealers in foreign currency to be permitted so that a grey or a black market in dollars or rupees dos not emerge in Afghanistan. Afghanistan should not be a member of any international financial institution since all are subject to imperialist governance and control. Afghanistan should not hold or accommodate SDR Afghanistan should not adopt and ad hoc to international quality, accounting and procedural standards. The Islamic state must develop its own national quality, accounting and procedural standards. DAB must make provisions in its reporting procedures (both for itself and for other tamveeli institutions) for assessing the impact of its policies and actions on the Islamic consciousness and behavior of those affected by these policies and activities. Article 2.1. We recommend “the primary objective of Da Afghan Bank will be to maintain domestic price stability and promote wealth creation as a means for the promotion of Islamic Values (Sabr, Tawakkul and Infaq) in Afghan society. Article 2.2. Replace ‘market based financial system’ with ‘tamveeli system’ Article 2.2. Para two. Remove ‘without that prejudice to the primary objective’ and add after ‘economic growth’ ‘as a means for the promotion of sabr, tawakkul and infaq in Afghan society. Article 2.2 under the para detailing with ‘basic tasks’ add 8) to undertake currency and credit planning to enhance the achievement of its primary objectives”.

Article 3.3. Remove ‘be entirely independent’ and add ‘and’ before ‘the pursuit’ Explanation: central bank autonomy is an imperialist monetarist neo-classical concept. It is emphasized that the central bank is necessarily a political agent. It must report through the ministry of Finance to the office of Hazrat Ameer ul Moumineen. Otherwise it will necessarily be subject to international money markets. Article 3.4. Remove ‘completely autonomous’ Article 3.5. Remove article 3.5. Article 4.2. Remove ‘the benefit of’ Article 4.3. Remove Article 4.3 Explanation: there are no international financial organizations that are not riba/gharar based. Under present circumstances joining any international financial organization is accepting subservience to the global riba/gharar based financial order. Article 4.4. remove article 4.4 for the same reason. Article 7.1. Composition of the supreme council must include a) a member of the office of Hazrat Ameer ul Moumineen b) a member of the Ministry of Finance Article 7.2 Substitute “President” with “Hazrat Ameer ul Moumineen and remove “with the consent of the parliament of Afghanistan. Explanation: There can be no parliament in the Islamic Emirate. Article 8.2. Add ‘the supreme council and the Executive Committee will also assess the impact of the implementation of macroeconomic policies on the Islamic consciousness of the Afghan people. 8.2.3 Replace Afghanistan with IEA Article 8.2.4. Remove this subclause Explanation: Trading of money is forbidden in Islam as this leads to gharar and riba dominated transactions. There can be no money and capital markets in the Islamic Emirate. 8.2.5. remove ‘and before mentioned markets’ Article 9.1. Remove ‘the limits of the open market operations by Da Bank Afghanistan and the interest rate for investment and loans by Da Bank Afghanistan’ and substitute ‘limits on currency creation and terms and conditions of state loans’ Explanation: it is very shocking that there is reference to interest based transactions in the State Bank Law. This is strictly forbidden in Islam. We have the task of creating an interest free monetary system at the public level. A major weakness of the current Islamic economics literature is its inability to do this. There can be no other market operations or interest based borrowing by the central bank in a riba free economy. DAIMG has proposed production based currency creation and distribution and state borrowing based on mudarba and musharka. See our document: Some Suggestions for Development of Planning System for Emirate Islamia. 9.4. Remove “parliament’ Explanation: There can be no parliament in an Islamic Emirate. 9.5. Remove this sub-clause Explanation: As noted above there are no non-riba oriented international financial organizations. Therefore Afghanistan should not seek membership or association with them. 9.9. remove this clause. Explanation: Discounting treasury bills necessarily implies interest which is not permissible in Sharia. As noted above there can be no open market operations by Da Bank Afghanistan.

Article 10.2. add “and demonstrate strong commitment to Islamic values’ after ‘integrity’ 10.3. After ‘banking’ add ‘fiqh’ 10.6 after ‘supervision’ replace ‘a’ by ‘of’ 10.7 not clear, reformulate 10.8 remove ‘members of parliament’ Explanation: there can be no parliament in an Islamic Emirate Article 11 after ‘’decree of’’ remove ‘parliament and insert ‘Hazrat Ameer al Moumineen’. Remove ‘their compensation may not be reduced during the term of appointment. Article 12.1 Remove “Parliament of Afghanistan’ and insert ‘ Hazrat Ameer ul Moumineen’ 12.1.2 Remove “unless such conviction was motivated’ by his political or religious views or activities Explanation: Emirate Islamia Afghanistan is an Islamic state. Any deviation from Islamic norms and practices should be ground for disqualification as should inducement in secular political and social activities. 12.2.8. remove “or has engaged in political activities’ 12.3. remove ‘president of Afghanistan’ and substitute by Hazrat Amir-ul-Moumineen Article 13. Throughout this article replace “president of Afghanistan’ by “Hazrat Ameer ul Moumineen. Aricle 15.6. At end of Article 15.6 add “Attempts will be made to take all decisions by consensus. All decisions of the supreme court will be legitimated with reference to Sharia’ Article 17.1 After ‘executive board add governor Article 18.1 after ‘diligence add ‘commitment’ to Islamic values. Article 20.1 After ‘comp….general add ‘a nominee of the office of Hazrat Ameer-ul-Moumineen 20.2.2 after ‘integrity add ‘ and demonstrate strong commitment to Islamic values and practices. 20.2.3. replace ‘law’ by Fiqh 20.2.6 remove “member of parliament. Explanation: there can be no parliament in an Islamic Emirate 20.3.5 after ‘misconduct’ add ‘violation of Islamic norms and practices” 20.5. replace “president of Afghanistan by Hazrat Ameer ul Moumineen. Article 21.4. Add sub-section 7 as follows: The Audit Department shall have a unit to monitor and evaluate the impact of the implementation of monetary policy measures on the moral and ethical behavior of the banking community that it serves, spiritual qualities in the members must be developed Explanation: As noted above the purpose of macroeconomic policy in an Islamic state is the creation of wealth not as an end in itself but as a means for the promotion of Islamic Values (Sabr, Tawakkul, Infaq) at the mass level. Hence checking moral impact of monetary policy measures is essential. The risk should not only be covered on the asset and liabilities site by imposing charges and maintain capital adequacy ratio. Article 22.1 Replace “financial” by “tamveeli” Article 22.2. After ‘employment conditions’ add ‘and the promotion of Islamic consciousness’. Article 23.1. After relevant legislation add “and Islamic norms” Article 23.1. After relevant add ‘and Islamic values’ Article 25.2. Replace “financial’ with ‘tamveeli’ Article 27.1 After determined by ‘replace ‘independent authority’ by Ministry of Finance Article 27.2 insert ‘Islamic’ before ‘state’ Article 28. replace ‘international accounting practices’ by ‘accounting practices formulated by the Islamic Emirate’.

Article 29.2.1. Insert ‘interest free’ before ‘debt securities’ Article 31.2.1. Reformulate as follows: “if the net official measure of the inflation rate is within the officially (prescribed inflation target band determined from time to time by the Ministry of Finance) the Ministry of Finance shall within one month after submission of that balance sheet deliver to Da Bank Afghanistan non-marketable tenure fixed debt securities denominated in Afghani’s mudarba basis as shall be necessary to remedy the deficit. Explanation. Interest bearing marketable securities are not permissible in Islam as they incorporate interest and their continuous trading involves Gharar. Debt securities may be issued for on a modarba basis, rate of return related to the rate of growth of real gross national income, valued and tradable not continuously but at fixed time interval. 31.1 insert after ‘measure of the ‘stipulated inflation target rate’ delete ‘marketable’ and add ‘tenure fixed’ before securities. After ‘bearing’ substitute ‘modarba based profit sharing’ delete ‘interest rates’ Explanation: see explanation of 31.2.1 Article 31.3. Replace ‘parliament’ by ‘ministry of Finance’. Add “National and international” before “experts”. Article 34.1. insert ‘printing’ Explanation: it is very essential that Afghanistan prints its own currency to prevent imperialist sabotage of the monetary system. Article 37. insert ‘within the country’ before ‘the printing’ Article 44.3. remove ‘or specifying’ Article 46. remove this article. Explanation. This article opens the door for circulation of foreign currencies in Afghanistan and as the imperialists desire may lead to a dollarization of the monetary system and its subordination to imperialist finance. Article 47. Paras 1 and 2 are missing. There should be specific legal persons allowed to have foreign currency obligations. They should be (a) government of the IEA which should collect foreign earnings earned through exports (b) foreign direct investors in wholly owned owned enterprise and joint ventures and (c) importers. Explanation: DAIMG has recommended the nationalization of foreign trade. All foreign exchange earned through exports should be used to purchase imports. Foreign exchange should be distributed among importers through an import licensing system (developed on the basis of targets specified by the national economic plan). The Islamic government should refrain from borrowing from international markets and from foreign governments as such loans involve riba and gharar. Article 63. Open market operations as currently practiced in capitalist countries are not permissible under Islamic law as the Treasury Bills issued are discounted creating riba. Open market operations are used in capitalist countries primarily to expand or contract money supply in the economy. DAIMG has suggested that the creation of money supply be linked to aggregate production short term government debt instruments may be linked to quarterly GDP estimates and forecasts. Purchase and sale on forward contract basis is also not permitted in Islamic law. Therefore DAIMG suggests Article 63 be reformulated as follows:

“The Islamic government may from time to time issue short term debt securities for purchase and sale out right or under repurchase agreements, the rate of return on which is linked to estimates and forecasts of annual and quarterly GDP.” Note: DAIMG also recommends that government debt securities not be issued in convertible foreign currencies as this can lead to a dollarization of the economy. 64.1 Remove this sub article. Explaimation: DAB is not required to keep reserve because it will not be functioning as the lender of last resort. In Islamic Tamweeli system bank will not use credit creation policy to create the debt from reserve and hence will not be responsible for the creation of M2 (debt currency). Article 64.2. DAIMG has recommended that 100 percent deposit reserve ratio be mandated for demand deposits and that all other deposits of banks be invested in wealth generating activities. This is necessary to prevent bank from creating money supply through their credit operations. DAIMG has recommended that the Islamic government be the sole supplier of money in the economy through its currency and credit planning system. Therefore DAIMG recommends that Article 64.2 be reformulated as follows. “Da Afghanistan Bank requires banks to hold 100 percent reserves against all demand deposits and to invest all other deposits in wealth creating activities. The required reserves should be maintained by way of cash holdings or by making deposits with Da Afghanistan Bank which should be calculated as average daily reserves over fixed time period. Reserves held at Da Afghanistan Bank may be remunerated on a non-interest basis by DAB. . Article 65. Replace “Article 66 with Article 64 Article 66. Discounting as presently undertaken in capitalist countries involves interest (riba) and as such is not permissible under Sharia. However discounting may be based on a production linked basis. (replace all the text in Article 66 with the above para) Article 67. After ‘three months” add “instant less” 67.1. Delete this subclause as banks should not be allowed to hold international reserve assets. Article 68. add at end after Da Afghan Bank “they should be non interest linked”. Article 69.1. Delete “After making a decision in this regard Da Afghanistan Bank will consult thereon with the Ministry of Finance and introduce Da Afghan Bank will attain approval for the implementation of its decision from the Ministry of Finance. Explanation: This approval is necessary as Da Bank Afghanistan is not a mere technical agency. It is accountable to the political authorities of the Islamic State. 70.2. Delete “foreign exchange dealers” DAIMG recommends that there be no freely functioning foreign exchange market or private foreign exchange dealers in Afghanistan as this is likely to lead to a “grey” or “black” market in foreign exchange in Afghanistan. Article 70.6. “determine from time to time the band within which the foreign exchange value of the Afghani may be allowed to fluctuate” Article 70.7. “undertake measures to stabilize the foreign exchange value of the Afghan so as to prevent undesirable appreciation and depreciation”.

Article 72.1(4). Delete this sub-clause Explanation. The IMF is an imperialist agency managing global liquidity. The Islamic government of Afghanistan should not join IMF and should not hold any SDRs. 72.1(5). Delete “forward purchase in repurchase agreement“. Delete “further” before “operation” Explanation: “forward” or “future” purchases and reproduction are not permitted according to Sharia 72.2. Remove “monetary” Explanation: The money supply issuance should not be related to the value of foreign exchange return. Article 75. Delete. DAIMG recommends the elimination of private sector foreign exchange dealers to prevent the emergence of a grey or black market. Da Bank Afghanistan should be the sole holder and distribution of foreign exchanges (to importers and other legitimate users of foreign exchange) through a licensing system. Buying and selling of foreign exchange should be prohibited. There should be no foreign exchange market in Afghanistan. Article 76.1. Delete “No transaction shall be carried out by Da Bank Afghanistan to extend financial approval to or for the benefit of the state or any of state agency. Explanation: This is a reflection of imperialist monetary theory. It should be deleted because: It diminishes the fiscal agency of the state It negates the wealth creating role of the state. It does not recognize that Da Bank Afghanistan is a political agency subordinate to the political authorities of the Islamic State and not autonomous. Central Bank autonomy is a technique for subordinating national central banks to the authority of imperialist riba and gharar based money markets. Article 76.2. Remove “consult with” and substitute “seek the approval of” Remove “parliament” and substitute with “Counsel of Ministry. Explanation: Da Bank Afghanistan should be subordinate to the Ministry of Finance. There can be no parliament in an Islamic Emirate Article 77. Remove “external public sector lending” Explanation. DAIMG has recommend that there be no external/foreign borrowing by the public or private sector economy in Afghanistan Article 78.1. Remove Da Afghan Bank may agree to pay interest on such deposits. Explanation: Interest payments are not permitted in Islam. Article 79.2. Remove “and interest” substitute with “profit shares” Article 81. Delete Explanation: This negates the wealth creation, political and fiscal role of Da Bank Afghanistan. Article 82. Reformulate as follows: Purchases by Da Afghanistan Bank of Debt securities shall be consistent with the monetary policy objectives of the State or as required for investing assets of Da Afghanistan Bank. Explanation: DAIMG has recommended that there be no capital or money (primary or secondary) market in Afghanistan Article 84.1. delete Article 84.2 delete Explaination: Foreign bank should not be allowed to operate in Afghanistan as they are a means for subordinating Afghanistan’s monetary system to the sovereignty of global riba based money markets. Article 85 remove “foreign exchange dealers” Article 86. remove “foreign financial institution”

Article 88.1. replace “insert international standards” with “Islamic principles, values and standards” Article 93.1.3. This clause is incomplete. Article 99.1. Remove “and financial market” Explanation: DAIMG has recommended that there be no capital markets in Afghanistan. Debt securities and ordinary shares may be issued with their value determined on the basis of their actual or anticipated profits from their investment in wealth creating activities and tradable not continuously but at fixed times (three months or a year). Article 100. Substitute “muharam” and zilhaj for Hamal and Hoot Article 101. After “consistently maintained” remove “international” and insert “national” Article 102. After Financial Statement add “and Annual Report”. At the end of Article 102 add “the Annual Report of Da Afghanistan Bank should include a statement assessing the impact of DAB’s policies and activities on the promotion of Islamic consciousness of the people of Afghanistan. Article 103. After “in accordance with” remove “international” and insert “nationally determined” Article 105.1. Remove “President” and insert “Hazrat Amir ul Moumineen. Article 108.2. Remove “Parliament” and substitute “Council of Ministers” 108.2. Add sub-clause (7) “A report assessing the impact of monetary policy awareness on the Islamic consciousness of the Afghan people” Article 108.1. Remove “president’ and replace with ‘Hazrat Amir ul Moumineen’ 108.1 Add subclause “An Aalim to assess the validity of Da Bank Afghanistan decisions and the subsequent decision of the commission on the basis of Sharia Law. Article 108.2 (2). After ‘recognized integrity’ add “and strong commitment to Islamic values and practices” Article 112.1 (2) after “law” add “Islamic norms and practices” Article 113.1 (1). Seems to contradict article 113.2 Article 117.1. after “other states’ remove “and with international organizations” Explanation: as all existing international financial organizations are riba and gharar financed Da Bank Afghanistan should neither join them nor forward any statistical or other information to them. Article 117.2. After “fields of competence” add “Da Bank Afghanistan shall also assist in the compilation of statistical qualitative matrices for assessing the impact of monetary policy measures and activities on the religious consciousness of those affected by such measures and activities. Article 117.4. After “losses and provisioning” remove “foreign currency position, interest rates” and insert “assessment of the impact of activities on the religious consciousness of those affected by their actions” Explanation: DAIMG has recommended that interest should be eliminated from the banking system and that all foreign exchanges should be held by Da Afghanistan Bank alone. After “compile statistics in accordance with” remove “international standards and practices” and insert “nationally developed standards and practices” Article 117.5 Remove “non bank financial” and insert “non bank tamveeli” Article 117.6. Substitute “tamveeli” for “financial”

Remove “Obligations to international organization” Explanation: As all existing international financial organizations are riba and gharar focused Afghanistan should not join them and Da Afghanistan Bank should have no obligations with international financial organizations. Article 117.7. Substitute “tamveeli” for “financial” Article 119.1. After “law” add “Islamic norms” Article 119.2. After “law” add “Islamic norms” Article 119.3. Meaning of “benefit” not clear Article 126 Remove “national and international” before “experts”. After “Central banking experts” add “figh experts” After “in accordance with” add before “standards” Remove “international” and insert “nationally developed” After “international external auditors” add “who shall also comment upon the impact of Da Afghanistan Bank’s policies and activities on the Islamic consciousness of those affected by such policies and activities. Article 126.4. Remove this Article Explanation: As a political institution serving the Islamic state it is very dangerous to have non-Afghan citizens as members of the Supreme Council and the Executive Board as they are likely to be under the influence of imperialist agencies. Article 131. Remove this clause Explanation: This is a treasonable clause and shows clearly that imperialists have participated in the drafting of this document. The Islamic state is described as “successor administration” is envisaged. This amounts to a delegitimation of Islamic rule in Afghanistan. The author of this Article should be identified and severely punished immediately. Article 132.2. Delete this article. Explanation: such exceptions should not be granted but in the absence of detailed application of prudential regulators rules be imposed by Da Afghanistan Bank on an ad hoc and selective basis. Article 133. Delete this article Explanation: There shall Insha Allah never be a parliament in Afghanistan. Members of the Supreme Council will always be appointed by Hazrat Amir ul Moumineen. Conclusion There is a fundamental difference in the conception of central banking as outlined in the Draft Banking Law and DAIMG’s conception. The Draft Banking Law which is virtually a carbon copy of the banking legislation of ghaddar Hamid Karzai government. Conceiving of Da Bank Afghanistan as a normalized capitalist monetary agency subordinates to imperialist riba and gharar focused finance. DAIMG sees Da Afghan Bank as a political agency of the Islamic State serving Allah and the Islamic cause.