Stable currencies and the extent to which they can be legally adapted as hedging instruments in Islamic banks.

Abstract

Stablecoins are among the most prominent innovations in the world of digital assets, aiming to combine the advantages of modern technology with the stability of monetary value by linking them to real or monetary assets. The challenge in the Islamic banking context lies in determining the extent to which these currencies can be employed as Sharia-compliant hedging instruments that maintain the stability of Islamic banks against price fluctuations, while adhering to Sharia principles and objectives. This research aims to analyze the economic nature and types of stablecoins, and to highlight their characteristics that may make them suitable for hedging, such as low volatility, rapid conversion capabilities, and reduced costs for cross-border transactions. It also discusses the relevant jurisprudential foundations, particularly issues of ownership, possession, uncertainty, interest, and the regulations governing transactions in digital currency.

The research examines the opinions of contemporary Sharia boards and Islamic jurisprudence councils on digital assets, focusing on the criteria that must be met for stablecoins to be considered a legitimate hedging instrument, such as the existence of a verifiable collateral, transparency in issuance, and compliance with financial governance. It also explores their potential use in mitigating the risks of currency volatility, supporting bank liquidity, and expediting financial settlement processes.

The research concludes that the legitimacy of stablecoins as a hedging tool depends on the nature of their value peg, the extent of actual ownership, and the absence of usury and excessive uncertainty in their use. This provides Islamic banks with a future framework for adopting secure and Sharia-compliant financial technologies.