In the early days, even before the time of the Prophet Muhammad (peace be upon him), the barter system was the common practice among people. Under the barter system, if a person needed something, they would trade an item they owned to get it. For instance, if one person had chillies and another had coriander, they would exchange equal value amounts of their produce. Traders functioned the same way, keeping various commodities in stock. Buyers would offer one item to receive another they required, trading rice for urad dal or urad dal for lentils. Merchants accounted for their profit margins during these exchanges, dealing strictly in item-for-item trades. All markets of that era operated on this system.
Later on, due to the difficulty of transporting heavy goods across long distances, coins were invented. These were minted from gold and silver. Gold and silver were considered highly valuable because they possessed a permanent, intrinsic worth. Furthermore, carrying coins was far easier than transporting physical goods. For example, instead of moving a camel from one place to another, carrying its equivalent price of twenty or thirty dirhams in coins was much simpler. Sending ten camels across long distances posed significant logistical challenges, whereas carrying gold or silver of equivalent value required minimal effort.
This metallic currency system was already in practice during the lifetime of the Prophet Muhammad (peace be upon him). Both gold and silver coins circulated during his time; silver coins were called *Dirhams* and gold coins were called *Dinars*. Unlike modern minted coins, their value was determined by precise weight. A specific weight of silver was designated as a Dirham, and a smaller fixed weight of gold was designated as a Dinar. All other goods and commodities were valued against these two standard currencies.
We can clearly understand this through events recorded during the Prophet’s (peace be upon him) time. In one instance regarding Zakat calculations, if a camel offered for Zakat fell short in age requirement, the rule permitted paying two goats or twenty dirhams instead. This shows that during that period, the market value of one goat was estimated at ten dirhams.
Similarly, there is the famous incident of Jabir (may Allah be pleased with him) during a journey with the Prophet (peace be upon him). Jabir’s camel grew extremely weak and refused to move, causing him to fall to the very back of the caravan. The Prophet (peace be upon him) approached him, inquired about the situation, and gently struck the camel once with his walking stick. Instantly, the camel started moving swiftly. The Prophet (peace be upon him) then said, “This camel is struggling; sell it to me.” Jabir agreed. After negotiating the price, the Prophet (peace be upon him) kindly permitted him, “Ride it until we reach Madinah.” Upon reaching Madinah, the Prophet (peace be upon him) said, “Hand over the camel and collect your money,” and instructed Jabir to offer two rakat of prayer in the mosque first. After Jabir finished his prayer, the Prophet (peace be upon him) ordered Bilal (may Allah be pleased with him) to weigh out the payment. Bilal (may Allah be pleased with him) weighed and handed over the agreed amount of silver coins (Dirhams). This serves as clear proof that selling an animal and receiving money in return was an established practice back then. Furthermore, as recorded in authentic Hadith collections like Sahih al-Bukhari, after handing over the payment, the Prophet (peace be upon him) generously said, “Keep the money you received, and I also gift this camel back to you; keep it as well.”
What we learn from this is that during the time of the Prophet (peace be upon him), all assets—such as houses, land, and gardens—were valued based on gold and silver coins. The system of Zakat on assets was formulated on this exact valuation. If Zakat is due on a house, one cannot physically cut off a 2.5% portion of the house to distribute, as doing so would destroy its utility. Therefore, the value of the house must be evaluated against the standard value of gold or silver, and 2.5% of that monetary value is paid as Zakat. All evaluations back then were anchored to gold and silver. For instance, if the Zakat rate anchored to gold was 50%, 50% of the property’s value would be paid; if it was 10%, 10% of the property’s value would be paid. Thus, the established rule was that assets had to be valued through gold and silver.
However, in later times, metallic coins made of nickel and copper, and eventually paper money, replaced gold and silver coins. Paper money carries no intrinsic natural value of its own; its value is purely fiat and representational. If a government declares a specific paper bill invalid, its value vanishes completely. For example, when a thousand-rupee note was demonetized overnight, we saw it instantly turn into a worthless piece of paper. In contrast, gold or silver Dirhams and Dinars could never be rendered worthless, because their intrinsic metal value remains forever intact.
The value of modern paper money rests entirely on the guarantee provided by the Governor of a country’s Central Bank. On currency notes, the Governor signs a pledge stating, “I promise to pay the bearer the sum of…” It is solely because of that official signature that the paper holds value. If the government revokes that status, it loses all worth. Nevertheless, today the entire world accepts paper currency as a universal medium of exchange. We use this money to buy and sell properties and assets. Therefore, to calculate Zakat on assets in modern times, we do not need to convert their value into Dirhams or Dinars; instead, we can evaluate assets using our prevailing paper currency and fulfill obligations like Zakat accordingly.