International Monetary Fund (IMF) was established in 1944 under the 
auspices of the United Nations, and became operational in 1947 with its headquarters in Washington, D.C. Its objectives are to promote international monetary cooperation and the growth of international trade, and to facilitate multilateral payment arrangements among member states. 

The members of the International Monetary Fund (IMF) used to define the value of their own currencies in terms of the dollar instead of gold because the United States had agreed to convert all dollars held by foreign governments into gold on demand. 

Thus U.S. dollar had become, in effect, the world’s currency. 

But after Arab-Israel war in 1960s the oil producing Arab countries 
resolved to rationalize the oil production and prices. That caused a big 
upheaval in international trade. It was estimated in late sixties that 80 % 
of the world’s wealth would go the oil producing countries within a decade or two. 

Among various measures to obstruct that flow of wealth to Arab Oil 
Producing Countries, United States suspended gold payments of U.S. 
dollars in 1971 as the quantity of dollars held by foreign governments 
began to exceed U.S. gold holdings by large amounts. 

Since then the United States has had a fully managed currency system, 
one with no metallic base whatsoever. Under this new system aside 
from the currency in people’s pockets, most of the money consists of 
entries in the books of banks. In the continuing evolution, as more money 
is exchanged and transferred electronically, the supply of US dollars will
increasingly be represented by entries in computer data banks. 

IMF Stops Operation in U.S. Dollars linked to Gold since 1972!

IMF used to operate in U.S. dollars linked to gold. But since 1972 the
IMF has used the special drawing right (SDR) as its standard unit of 
account, valued in terms of a weighted “basket” of currencies. 

Since 1971, IMF rules have been progressively adapted to floating 
exchange rates that are controlled by the big economic powers. 
The liabilities of the third world countries are inflated and the liabilities 
of the G 7 countries are reduced by jugglery of exchange rates. 

This can be termed a new kind of ‘riba’. IMF allows standby loans to 
members in balance-of-payments difficulties. To be eligible for a credit 
quota or the loan, the country must agree to take certain corrective 
measures besides paying interest. 

The IMF also operates other drawing facilities, including several designed to provide preferential credit to developing countries with liquidity problems. 

Fall in purchasing power of money  constitutes a breach of trust of the people according to the  standards of trust, measures, weight and balances as prescribed 
in Quran-e-Hakim and the Sunnah. It can also be termed as a  practice akin to indirect form of 'Riba' strictly prohibited by the
Holy Quran.----

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The system of managed money circulation and weighted basket 
of currencies as devised and adopted since 1971 by IMF and the old G7 groups is not working well for the Third world countries.

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 Linking the currency to the commodity should be the first priority 
in modifying the banking practices according to Islamic Ideals. It 
is argued that our reserves are meager and if we freeze the 
value of Rupee (e.g.One gram gold for RS. 500) we may need 
100 times or so greater gold reserves! that we do not have!-----
 
 

Group of Seven (G7): Seven leading industrial nations; the United States, Japan, Germany, France, the UK, Italy, and Canada formed this group ostensibly with the aim of coordinating international management of exchange rates after the collapse of the old system of fixed rates. However, the real reason for formation of this group is suspected to be to offset the impact of increase in oil prices. During the middle of sixth decade Arabs started using their oil production to strengthen defense against expansionist designs of Israel. The hegemony of these powers over the economic affairs was threatened. Since 1975 the heads of government of G 7 countries have been meeting once a year to discuss economic and political matters. The president of the European Commission is also invited to attend their annual summits. Russia has been a partner in political consultations since 1994. 

The group has been blamed for the 1987 stock market crash in which most of the oil producing countries lost money in their investments abroad.

G 7 is also blamed for economic exploitation of Asian tigers and Far Eastern countries in 1996/97.

There has been growing criticism of the group for its policies of 
manipulating the exchange rules to maintain their economic supremacy and to obstruct the flow of funds to oil rich Islamic countries by unfair means. It is worth remembering that during Iraq-Iran war both the countries bought weapons secretly at exorbitant prices from the leading nations of G 7. Subsequently, the attack of Iraq on Kuwait and the ensuing events have helped the G 7 countries in restricting the flow of wealth to Islamic countries. 

In quite a few developing countries the organizations like IMF and the 
World Bank are now hated. They are said to be the agents of the big 7 
economic powers who are accused of practicing economic slavery and 
exploiting the underdeveloped or developing countries. These organizations are considered to be working for the benefit of the US and its economic partners by sacrificing the interests of the countries in debt. The disparity between the wages and salaries of Asian, European and American workers with similar qualifications and expertise, prevails not only in the West but also in oil rich Asian Countries. It is apprehended that similar treatment is meted by the aid agencies in settling the balances of payment. The products and services of Asian and Latin American countries are under-valued and those of the big 7 over-valued.

One of the underlying objects of various aid programs developed by US 
and other developed countries has been to keep the wheels of their 
expanding industries running by expanding consumer base in developing countries. They were the people like J. F. Kennedy who realized that:

“ If a free society cannot help the many who are poor, it can not save the few who are rich.”

“The wave of the future is not the conquest of the world by a single dogmatic creed but liberation of diverse energies of free nations and free men.” 
_J. F. Kennedy

International Bank for Reconstruction and Development or generally known as the World Bank, was established in 1944 under the initiative of the United States on the platform of the United Nations. The main objectives of the bank are “to assist in the reconstruction and 
development of territories of members by facilitating the investment of 
capital for productive purposes, to promote private foreign investment 
by means of guarantees or participation in loans and to supplement 
private investment by providing, on suitable conditions, finance for 
productive---“. 

The World Bank grants loans only to member nations, for specific projects. To ensure repayment, member governments must guarantee loans made to private concerns within their territories. After the loan has been made, the bank requires periodic reports, both from the borrower and from its own observers.

Initially the Bank granted loans were granted chiefly to European countries and were used for the reconstruction of industries damaged or destroyed during World War II (1939-1945). Since the late 1960s most loans have been granted to the developing countries in Africa, Asia, and Latin America to help them to raise their productivity and to gain access to such necessities as safe water and waste-disposal facilities, health care, family-planning assistance, nutrition, education, and housing.

The problem with most of the loans acquired by us has been that they 
provided transient solution and increased our dependence on the West. 
Although the World Bank invites different countries to depute officials to 
serve the bank, most of the bureaucrats, who manipulate to get the 
lucrative job, can hardly be regarded as experts. The consultants and 
experts of the aid agencies who come to evaluate or monitor our projects see things from a different perspective. Their heavy fee, expenses and 
solutions increase the burden of our debts. The opinions of Pakistani 
experts are not given credence. 

Purchase of the things that we need badly on credit is often linked with 
the sale of the things that are not absolutely necessary for us but being 
redundant or outdated in the West, we are forced to buy them on credit. 
Some of our indiscreet politicians and bureaucrats are said to have acquired (for their personal gains abroad) the loans for the country for things that were not necessary. As imports exceed our exports we suffer trade deficit every year and depend on IMF and other loans to meet our liabilities. We carry heavy burden of international loans. There appears to be no escape from payment of interest to our creditors. But the balance of payment is just one problem.

Need For New Economic Order:

Islamic Oil Producing Countries, with the bounty of Allah, were in a position to help evolve a fair and equitable economic order for the world. But first the Iran-Iraq war and then Iraq's attack on Kuwait have helped the forces of exploitation in maintaining the economic hegemony There may be some hindrances but there is still time to sell the oil in exchange of Gold and silver. The members of the IMF may be asked to redefine the value of their currencies in terms of gold and silver. 

The Islamic countries must resolve their own internal conflicts and adopt 
the virtues of austerity and cut down their imports and avoid trade 
deficits to pave the way for a fair and equitable economic order and to get out of the clutches of G7 countries. 

------ The End of the Article ----
Click here for Part 2 of this article

Several thousand books and articles about Islamic Banking have been published during past 30 years. Pror to that the discussion used to center around legitmacy of Interest fro Muslims. Whereas the number of books on Islamic Banking is impressive but not the quality of contents. Information about Islamic Banking is available on the Internet form such sources as 

 State Bank of Pakistan
http://www.sbp.org.pk/publications/islamic/book1/index.htm

Islamic Banking Institute
http://www.islamic-banking.com/

Article by Mohamed Ariff, University of Malaya, taken from Asian-Pacific Economic Literature, 
http://www.usc.edu/dept/MSA/economics/islamic_banking.html

Critical Overview of Islamic Banking
http://www.netvert.biz/paklink/articles/ibanking.html

Click here to see a short list of the books about Islamic Banking.