Sharia and Legal Challenges in Compensating for the Depreciation of Money in Iran’s Banking System

Abstract

The depreciation of money is a significant economic phenomenon in inflationary societies and has considerable effects on contractual relationships, particularly within the banking system. Compensation for the depreciation of money refers to mechanisms designed to preserve the real purchasing power of monetary debts and financial claims so that the economic equilibrium of contracts is not disrupted over time. This issue is of particular importance in Iran’s banking system because, on the one hand, banks operate through contracts based on Islamic nominate contracts, while, on the other hand, severe inflationary fluctuations can substantially diminish the real value of monetary obligations. The principal objective of the present study is to examine whether compensating for the depreciation of money in Iran’s banking system is compatible with the principles of Islamic jurisprudence and the fundamental rules of law and, where such compensation is permissible, to determine its scope and conditions. Some scholars regard such compensation as analogous to riba and therefore question its legitimacy. Conversely, a number of jurists and Islamic legal scholars justify it by invoking principles such as commutative justice, the no-harm rule, and the preservation of the real value of property. This study employs a descriptive-analytical method and draws on library-based sources, including Islamic jurisprudential texts, legal scholarship, banking legislation, scientific articles, and selected judicial precedents. The data were examined through an analysis of jurisprudential and legal texts and a comparative evaluation of the relevant scholarly perspectives. The research gap in this field arises from the absence of a coherent framework capable of reconciling Islamic jurisprudential considerations with the economic requirements of the banking system. Many existing studies adopt either an exclusively jurisprudential approach or a purely economic perspective, while relatively few have attempted to integrate these two domains systematically. The findings indicate that, through a dynamic interpretation of certain jurisprudential principles and due consideration of the objective of justice in transactions, mechanisms can be developed to compensate for the depreciation of money, provided that such mechanisms are not characterized as guaranteed interest constituting riba and are supported by a clearly defined contractual and statutory basis. Accordingly, it is recommended that, first, the legislature establish a transparent framework for adjusting monetary obligations in proportion to the inflation rate; second, banks employ legitimate contractual instruments, such as adjustment clauses or limited indexation; and third, Islamic jurisprudential and banking institutions collaborate to develop a domestic, Sharia-compliant model for preserving the real value of monetary debts.