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Creation Of Money And The Role Of Central Bank In An Islamic Framework: A Simulation For Pakistan


  • M. Shaukat Ali


The paper attempts to formulate, in the context of an Islamic economy, a practical model through which monetary management could be practiced in the absence of interest rate. Having developed the model, it has also been applied to the case of Pakistan to simulate a complete process of monetary management with interest-free banking. Four steps are envisaged in this process: assessment of demand for money; determining the size of the outside and the inside money; quantifying needs of the major claimants of money; and actual process of money creation and distribution. The simulated results for Pakistan's economy for 1996-97 point to a relatively more efficient and economical monetary management as it reduces dependence on base money, provides for interest-free consumption loans, meets fiscal requirements without resorting to interest-based borrowing, and also caters to the requirements of the private sector by providing more credit than was actually recorded for 1996-97.

Suggested Citation

  • M. Shaukat Ali, 2001. "Creation Of Money And The Role Of Central Bank In An Islamic Framework: A Simulation For Pakistan," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 9(1), pages 55-76, June.
  • Handle: RePEc:ije:journl:v:1:y:1987:i:2:p:55-76

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    More about this item


    Money; Islamic economics; Pakistan;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • P40 - Economic Systems - - Other Economic Systems - - - General


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