Digital currencies have received a mixed response from the Islamic banking and finance (IB&F) industry. As Shariah permissibility (or ‘compliance’) strongly influences the demand for and supply of products in the IF&B industry, the verdicts reached by Shariah scholars on digital currencies have a strong bearing on their adoption amongst users. However, the degree of divergence in verdicts (fatwas) on cryptocurrencies - ranging from impermissibility to permissibility - has added to uncertainty regarding the viability of digital currencies within the industry. Nevertheless, actors within the industry are trying to find ways in which digital currencies and the underlying technology may be applied successfully to promote the principles and objectives of Islamic economics and finance that seek to promote the holistic wellbeing of humankind.
This study analyses pertinent regulatory issues surrounding digital currencies in general, and for Islamic economics and finance in particular. Section One provides a brief background on digital currencies and the underlying blockchain technology. Section Two elaborates on some salient regulatory issues, as well as the drivers of regulation for digital currencies on both the demand and supply sides. Section Three analyses the Shariah response to digital currencies, as well as the role of blockchain technology that underpins digital currencies, and examines the potential applications of blockchain to the Islamic economic and financial system.