Monetary Policy & Monetary Regime in an Interest Free Economy: An Alternate Approach In Monetary Economics amidst Great Recession
AbstractThis paper reviews limited, but precious academic literature on central banking and monetary management in Islamic finance. It discusses the building blocks of an Islamic monetary system. It discusses how savings would feature despite discontinuation of interest, how inflation will be checked with central banks not having at its disposal conventional OMO, how liquidity will be managed in banking sector when central bank wants to inject liquidity or mop up funds. How and to what extent the institution of Zakat would enable the government to meet its fiscal targets and does not crowd out private sector. How balance of payments and exchange rate stability can be managed in an interest free economy. If in the short term, the government or central bank needs alternative source of revenue other than Zakat, they can issue GDP linked bonds. This could replace T-bill and provide a base instrument for OMO and liquidity management in the banking and financial sector.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 20029.
Date of creation: Jan 2010
Date of revision:
Islamic corporate finance; pricing of capital; interest free finance; Interest; Interest free economy; Usury; Time value of money; Riba; Musharakah; Mudarabah; Ijara; Salam; Istisna; Qard-e-Hasan; Diminishing Musharakah;
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-ARA-2010-01-23 (MENA - Middle East & North Africa)
- NEP-CBA-2010-01-23 (Central Banking)
- NEP-MAC-2010-01-23 (Macroeconomics)
- NEP-MON-2010-01-23 (Monetary Economics)
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