YOGYAKARTA – In a landmark move reflecting its adaptive approach to contemporary issues, the Majelis Tarjih dan Tajdid (Council for Tarjih and Tajdid) of PP Muhammadiyah, in collaboration with the Majelis Hukum dan HAM PWA DIY (Council for Law and Human Rights of the Muhammadiyah Women’s Auxiliary of Yogyakarta Special Region), convened a pivotal discussion concerning the Islamic legal status of cryptocurrency. Held at Universitas Muhammadiyah Yogyakarta, the discourse culminated in a nuanced fatwa that delineates specific conditions for the permissibility and prohibition of digital assets within an Islamic framework, aligning with Indonesia’s evolving regulatory landscape. Rofiq Muzakkir, Secretary of the Majelis Tarjih dan Tajdid, emphasized that this significant religious edict is the outcome of extensive and comprehensive studies into the transformative impact of digital technologies on the global economy.

Muhammadiyah, one of Indonesia’s two largest and most influential Islamic organizations, boasts a long history of modernizing Islamic thought and actively engaging with societal challenges. Established in 1912, it has consistently championed progressive interpretations of Islamic teachings, often leading the discourse on new scientific, social, and economic phenomena. Its fatwas carry significant weight among its millions of members and beyond, shaping practices and perspectives across the archipelago. The decision to issue a detailed fatwa on cryptocurrency underscores Muhammadiyah’s commitment to providing clear guidance for Muslims navigating the complexities of the digital age, ensuring adherence to Sharia principles while embracing technological advancements. This proactive stance is particularly crucial in Indonesia, a nation with a burgeoning digital economy and a significant Muslim population eager for clarity on emerging financial instruments.

The Evolving Nature of Money: From Barter to Digital Assets

During his presentation, Rofiq Muzakkir offered a profound historical perspective on the concept of monetary value, underscoring its dynamic and continuously evolving nature across human civilizations. He elaborated on how societies transitioned from rudimentary barter systems, where goods and services were exchanged directly, to the adoption of precious metals like gold and silver as universal mediums of exchange due to their intrinsic value, scarcity, and durability. This evolution eventually led to the widespread use of paper currency, initially backed by reserves of physical gold. Muzakkir highlighted a pivotal moment in modern financial history: the year 1971. This year marked the definitive collapse of the Bretton Woods system, which had pegged the U.S. dollar to gold and, by extension, other currencies to the dollar. With the United States unilaterally abandoning the gold standard, fiat currencies – money declared legal tender by a government but not backed by a physical commodity – became the global norm.

"Currently, the value of money depends entirely on the public’s trust in the state," Rofiq explained on Sunday, April 26. This shift in the fundamental underpinning of monetary value laid the groundwork for the emergence of entirely new forms of assets, notably digital currencies like cryptocurrencies. He articulated that these digital codes derive their value purely from global trust in their underlying technology and perceived scarcity, mirroring, in a decentralized fashion, the trust placed in state-issued fiat. The philosophical departure from centrally controlled currency to a decentralized, trustless system (where trust is placed in cryptographic protocols rather than institutions) represents a monumental leap in the evolution of financial instruments. This historical context is critical for understanding why Muhammadiyah’s fatwa acknowledges the legitimacy of crypto as an asset class, recognizing it as a logical, albeit complex, continuation of money’s long evolutionary journey.

Key Islamic Legal Classifications for Cryptocurrency

In delving deeper into the Sharia perspective, Rofiq Muzakkir outlined that the legal status of cryptocurrency within Islam is meticulously divided into two principal categories, each carrying distinct rulings based on its intended function and the prevailing regulatory environment. This dual classification reflects a careful balance between Islamic jurisprudence’s adaptability and its unwavering commitment to core ethical principles.

Cryptocurrency as a Commodity and Investment Asset

The first category considers cryptocurrency as a commodity or an investment asset. In this capacity, Muhammadiyah’s fatwa declares its use as mubah or permissible. This permissibility, however, is not unconditional. It is stringently contingent upon the investment being entirely free from elements deemed unlawful in Islam: maisir (gambling), gharar (excessive uncertainty or ambiguity), and riba (interest).

• Maisir (Gambling): This refers to transactions where one party stands to gain at the expense of another without an equitable exchange, often involving pure chance or excessive speculation. In the context of cryptocurrency, this condition necessitates that investments are made with genuine intent for asset growth based on fundamental analysis or market trends, rather than pure speculative betting or schemes designed to exploit others. Muhammadiyah’s ruling implicitly discourages highly speculative day trading driven by irrational exuberance or panic, which can often resemble gambling.
• Gharar (Uncertainty or Ambiguity): Islamic finance places a high premium on transparency and certainty in contracts and transactions. Gharar arises when there is excessive uncertainty regarding the subject matter, price, or delivery of a transaction, leading to potential disputes or unfair outcomes. For crypto investments to be permissible, the underlying assets, their technological protocols, and the terms of trade must be sufficiently clear and understood. Investments in highly obscure, unaudited, or perpetually unstable digital projects could fall under the prohibition of gharar. The fatwa encourages due diligence and investment in established, transparent cryptocurrencies with clear use cases.
• Riba (Interest): Riba encompasses any unjust, exploitative, or unearned increase in money or goods, typically associated with interest-based lending or borrowing. While the direct purchase and sale of cryptocurrencies do not inherently involve riba, investors must be cautious of financial products or platforms within the crypto ecosystem that offer fixed, predetermined returns on staked or lent crypto, as these could potentially constitute riba. The fatwa guides Muslims to avoid such interest-bearing mechanisms.

By setting these conditions, Muhammadiyah aims to channel Muslim engagement with crypto into ethical and productive investment avenues, distinguishing it from purely speculative or exploitative practices.

Cryptocurrency as a Medium of Exchange and Payment

The second, and critically distinct, category addresses cryptocurrency’s role as a medium of exchange or tool for payment. In this specific context, Muhammadiyah’s fatwa unequivocally states that its use is not permissible within the territory of Indonesia. This prohibition is not primarily based on intrinsic Islamic legal principles but is rather a direct consequence of existing national laws and regulations that explicitly define legal tender and regulate financial transactions.

"Therefore, the public is urged to only use crypto as an instrument for storing wealth, not for shopping transactions," Rofiq underscored. This directive directly aligns with the mandates of the Indonesian central bank, Bank Indonesia (BI), which maintains that the Rupiah is the sole legal tender in Indonesia. The central bank has consistently warned against the use of cryptocurrencies as a means of payment, citing risks to monetary stability, consumer protection, and the potential for illicit activities. Muhammadiyah’s fatwa thus reinforces regulatory coherence, guiding its followers to respect and adhere to national economic policies, an important aspect of Islamic citizenship.

Indonesia’s Regulatory Framework for Digital Assets

The nuanced position articulated by Muhammadiyah on cryptocurrency significantly intersects with and, in many ways, complements Indonesia’s existing regulatory framework for digital assets. Understanding this framework is crucial to appreciating the practical implications of the fatwa.

Bank Indonesia’s Mandate on Legal Tender
Bank Indonesia (BI), as the nation’s central bank, holds the exclusive authority to issue and circulate currency in Indonesia. Its primary mandate includes maintaining monetary stability and ensuring the smooth functioning of the payment system. Consequently, BI has repeatedly clarified that the Indonesian Rupiah is the only legal tender in the country. Any attempt to use other currencies, including cryptocurrencies, for transactional purposes within Indonesia is a violation of Law No. 7 of 2011 on Currency. This firm stance from BI directly underpins Muhammadiyah’s prohibition of cryptocurrency as a payment method, emphasizing the importance of national economic sovereignty and regulatory compliance.

Bappebti’s Regulation of Crypto as a Commodity
In contrast to BI’s position on currency, the Commodity Futures Trading Regulatory Agency (Bappebti) under the Ministry of Trade has taken a different approach, classifying cryptocurrencies as "commodities" that can be traded on futures exchanges. This classification was formalized through Bappebti Regulation No. 5 of 2019, which has since been revised and updated, notably by Bappebti Regulation No. 13 of 2022. These regulations establish a legal framework for the trading of crypto assets, outlining requirements for crypto asset exchanges, clearing houses, and custodians. This regulatory environment allows for the legitimate buying, selling, and holding of cryptocurrencies as investment instruments, provided they are traded through licensed entities. This regulatory clarity from Bappebti directly supports Muhammadiyah’s ruling that crypto is permissible as an asset or commodity for investment, so long as Islamic ethical guidelines are met. The existence of a regulated market for crypto assets as commodities ensures a degree of oversight that mitigates some of the gharar concerns, assuming investors utilize licensed platforms.

OJK’s Cautionary Stance
The Financial Services Authority (OJK) is responsible for regulating and supervising financial services activities across various sectors, including banking, capital markets, and non-bank financial industries. While OJK does not directly regulate crypto assets (that falls under Bappebti), it has consistently issued warnings to the public about the inherent risks associated with cryptocurrency investments. OJK’s concerns typically revolve around the high volatility, potential for fraud, lack of investor protection mechanisms in unregulated spaces, and the general speculative nature of the market. These warnings underscore the importance of financial literacy and caution, echoing Muhammadiyah’s emphasis on prudence.

Navigating Volatility and Emphasizing Digital Financial Literacy

Beyond the legal classifications, Rofiq Muzakkir also stressed the paramount importance of digital financial literacy for anyone considering engaging with cryptocurrency. He highlighted the notorious volatility of crypto assets, citing Bitcoin as a prime example. The digital asset market is characterized by rapid and often unpredictable price swings, which can lead to significant gains but also substantial losses.

"While price increases can be very tempting due to the limited number of coins worldwide, the risk of loss remains significant, thus requiring a very mature understanding," Rofiq explained. This warning serves as a crucial reminder for potential investors. The allure of quick riches, often fueled by stories of exponential growth, must be tempered with a deep comprehension of market dynamics, technological underpinnings, and personal risk tolerance. Muhammadiyah’s emphasis on education aims to empower individuals to make informed decisions, preventing them from falling prey to scams or making impulsive investments based on incomplete information. It promotes a responsible approach to wealth management, aligning with Islamic principles that encourage prudence and discourage recklessness in financial dealings.

Zakat on Digital Assets: Ensuring Economic Justice

A significant and forward-looking aspect of Muhammadiyah’s new fatwa concerns the application of zakat to digital assets. Rofiq Muzakkir clarified that this latest ruling reflects a more proportional and adaptive approach to future technologies within Islamic jurisprudence. Historically, Islamic scholars have grappled with how to apply traditional zakat principles – which typically apply to gold, silver, agricultural produce, livestock, and business profits – to new forms of wealth.

"If previously there was doubt, now the direction of Islamic legal policy is more adaptive and holistic. Furthermore, digital assets can now be subject to zakat if their value has reached the nisab threshold," he revealed. This decision is groundbreaking, as it formally recognizes digital assets as mal (wealth) that can be subject to obligatory charity.

• Nisab: The nisab is the minimum threshold of wealth that a Muslim must possess for zakat to become obligatory. For digital assets, this will likely be benchmarked against the nisab for gold or silver, or equivalent monetary value, typically held for a full lunar year (haul).
• Haul: This refers to the completion of one lunar year during which the nisab amount of wealth has been consistently maintained.

The policy of imposing zakat on cryptocurrency and other digital assets is firmly rooted in the Islamic objective of ensuring economic justice and promoting wealth redistribution. Muhammadiyah views digital assets as possessing tangible economic function and value for their owners, just like traditional forms of wealth. By subjecting them to zakat, the organization aims to channel a portion of this new form of wealth towards assisting the poor and needy, thereby upholding the social welfare dimensions inherent in Islamic economic principles. This move not only legitimizes digital assets within the framework of Islamic finance but also integrates them into the broader system of social solidarity and economic equity.

Broader Implications and Reactions

Muhammadiyah’s comprehensive fatwa on cryptocurrency carries significant implications for various stakeholders, both within Indonesia and the broader Islamic world.

For Islamic Finance in Indonesia: This fatwa sets a crucial precedent. As one of the largest and most respected Islamic organizations, Muhammadiyah’s detailed guidance will likely influence other Islamic institutions and scholars in Indonesia and potentially beyond. It demonstrates how traditional Islamic jurisprudence can evolve to address complex modern financial instruments, providing clarity where ambiguity previously existed. This could spur further development of Sharia-compliant digital financial products and services.

Alignment with National Policy: The fatwa’s alignment with Indonesia’s national regulations—permitting crypto as an asset (under Bappebti) but prohibiting it as a payment method (under BI)—showcases Muhammadiyah’s commitment to civic responsibility and adherence to state laws. This harmonious approach avoids potential conflicts between religious directives and governmental policies, fostering stability and clarity for Muslim citizens.

Muhammadiyah’s Modernist Vision: The adaptive and holistic nature of this fatwa reinforces Muhammadiyah’s long-standing reputation as a modernist Islamic movement. By engaging deeply with cutting-edge technology and providing practical, nuanced guidance, the organization positions itself as a forward-thinking leader capable of navigating the challenges of the 21st century while remaining true to Islamic principles. This approach could enhance its appeal among younger, tech-savvy generations of Muslims.

Potential Impact on Investor Confidence: For Indonesian Muslims who have been hesitant about investing in cryptocurrencies due to religious concerns, this fatwa provides a clear pathway. By establishing conditions for permissibility as an asset and outlining zakat obligations, it offers a degree of religious assurance. This could potentially lead to increased, albeit cautious, participation of Muslim investors in the regulated crypto asset market, provided they adhere to the stipulated Sharia conditions and exercise financial literacy.

Global Islamic Finance Dialogue: While the fatwa is specific to Muhammadiyah, its detailed methodology and conclusions will likely contribute to the ongoing global discourse within Islamic finance on the permissibility of digital assets. Different Islamic bodies worldwide have adopted varied stances, and Muhammadiyah’s reasoned position, particularly its dual classification and emphasis on regulatory alignment, offers a valuable contribution to this evolving scholarly conversation.

Through this extensive socialization effort, the organizers, Muhammadiyah’s Majelis Tarjih dan Tajdid and Majelis Hukum dan HAM PWA DIY, express their hope that the Indonesian public will be equipped to approach the digital transformation with greater wisdom and prudence. The aim is to fully leverage the opportunities presented by new technologies while steadfastly upholding the fundamental principles of Sharia and ensuring economic justice and societal well-being. This comprehensive fatwa marks a significant milestone in integrating Islamic ethics into the rapidly advancing digital economy, offering a balanced and adaptive framework for the future.