Interest has been condemned in religion, critiqued in economics, and blamed for inequality and crises. Yet it refuses to die. Why?
In this chapter, Gesell’s Concept of Free-Money: Eliminating Interest through Information-Money, my co-author Prof. Ahamed Kameel Mydin Meera and I revisit a century-old idea from the German economist Silvio Gesell—and test how it might align with Islamic principles.
What we found challenges not only modern banking but the very way we think about what “money” should be.
Why Interest Exists
Interest, in theory, rewards savers for postponing consumption. But Gesell turned that story upside down. He argued that interest exists not because people are patient—but because money gives them power.
Those who hold money can withhold it from circulation, creating artificial scarcity. Others must then pay a “tribute” to borrow it. This, Gesell said, is why economies suffer periodic slowdowns: when too much money is hoarded, trade freezes.
Our modern systems—whether conventional or “Islamic”—still play by this rule. Islamic banks, despite avoiding the word “interest,” often mirror market rates because they compete for the same scarce liquidity.
The Free-Money Idea
Gesell’s radical proposal was simple: make money lose value if it is not used.
He called it free-money—not because it costs nothing, but because it circulates freely. Hold it too long, and it depreciates. Spend it quickly, and it retains value.
By introducing a small negative charge (for instance, 0.1 percent per week), Gesell wanted to make hoarding unattractive, forcing money to serve its purpose—facilitating exchange, not collecting tribute.
He even imagined a state that would issue only this kind of money and require taxes to be paid in it. The result: money that moves, not sleeps.
Islam’s Own Answer
Long before Gesell, Muslim scholars—from al-Ghazali to Ibn Taimiyyah and Ibn Khaldun—grappled with the same dilemma. Islam forbids riba (interest) and discourages hoarding wealth. The Qur’an warns of punishment for those who “bury gold and silver and do not spend it in the way of Allah.”
The solution, Islam teaches, is zakat: a built-in cost on idle wealth, ensuring money keeps circulating. In many ways, zakat acts like Gesell’s “demurrage”—a gentle decay that keeps wealth alive in the community.
But where Gesell’s “free-money” relied on fiat paper, Islam insists money must have intrinsic value. Gold and silver were not just historical conveniences—they embodied fairness in exchange.
From Free-Money to “Information-Money”
We proposed a synthesis: a gold-based information system that combines Gesell’s structural insight with Islamic ethics.
In this model, gold and silver serve as the unit of account and store of value, while digital information systems handle the exchange. Credit and clearing institutions record transactions transparently, allowing trade to continue even when physical coins are limited.
Technology becomes the medium—not the master—of money.
By separating information from value, the system avoids both the hoarding problem and the exploitation of fiat inflation. It honors Islamic law while solving the practical issues of liquidity and velocity.
Why It Matters
The quest for “good money” is not just an academic exercise. Interest-based systems concentrate power, create instability, and transfer wealth from the many to the few.
A system that circulates value without interest—and without state monopoly—could redefine how communities create prosperity. For Islamic finance, it is a return to principle and innovation at once.
Final Thought
Silvio Gesell dreamed of a world where money served people, not the other way around. Islam dreamed the same, centuries earlier.
Our chapter argues that technology now makes this vision possible: a monetary system grounded in gold, information, and justice—where money moves, wealth flows, and the economy breathes freely again.
Read the full study: Omerčević, E., & Meera, A. K. M. (2012). Gesell’s Concept of Free-Money: Eliminating Interest through Information-Money. In Islamic Banking and Finance: Principles, Practices and Prospects (2nd ed.).
