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Title Issuance and circulation of Money: A Comparative Study of Islamic and Conventional Monetary Policy

Author(s) Hafiz Moazzum Shah

Abstract Sustainability of modern economies requires active and prudent macro-management through fiscal and monetary interventions by the regulators. Regulators attempt to influence real economy through monetary policy instruments which target a desired level of money supply in economy. Monetary policy instruments observe different restrictions and conditions on various financial markets and institutions, particularly on banks, to achieve monetary and economic stability at internal and external levels. Monetary policy instruments and their efficiency is largely linked with operationality of interest rate either directly or indirectly. Invention of money is the most striking achievement in human history. Through the process of innovation, money has evolved from barter to digital form in hands with evolution of human civilization. The circulation of money in the economy affects key factors of the economic activities and social features like production, distribution, and consumption of goods and services. According to the modern economists the role of money is not limited to medium of exchange rather it significantly impacts the real economy. Therefore, study of money and monetary policies is one of the basic and important fields of economics and is considered to be the most important to achieve the goals of successful economy. For this purpose, every country has a central bank that is charged with the responsibility to issue and regulate money in the economy for a sustainable economic system. Islamic monetary system is no exception. The importance of money and monetary policies cannot be over emphasized in modern Islamic monetary system. Therefore, shariah issues in money issuance and its circulation has attracted the focus of Muslim jurists in juristic debates. Modern monetary policies are generally based on interest and other factors prohibited by Islam. However, in international global financial system, the economies of Muslim countries cannot remain indifferent towards the monetary system and policies as applied in most of the countries of the world. Hence, there is need of Shariah analysis of conventional monetary policy and its comparison to Islamic monetary policy as introduced by some contemporary Muslim jurists. The research aims to choose the extent of the applicability of financial and monetary policy tools within the framework of Islamic economic system in the light of Islamic legal instruction. This study proceeds with the discussion on concept of money in conventional and Islamic economic system. Moreover, a comparative study of supply and demand for money has been examined. The concept of an Islamic central bank and monetary policy tools in comparison with conventional monetary policy has also been discussed. The research methodology that has been used in this research is analytical, qualitative, and comparative study between conventional and Islamic thought followed by the deductive and inductive approach together to arrive at the results of the study. The study found that an Islamic central bank can work and implement monetary policies compatible with shariah avoiding interest and other practices prohibited by shariah. There are sufficient monetary policy tools and ways for a modern Islamic economic system. The authorities of the Muslim countries should implement Islamic monetary policy and avoid interest and other non-shariah compliant practices.

Type Thesis/Dissertation PhD

Faculty Social Sciences

Department Islamic thought & Culture

Language English

Publication Date 2021-10-25

Subject Islamic Studies

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