Central banking and monetary management in islamic financial environment

Hanif, M. Nadim and Sheikh, Salman (2009): Central banking and monetary management in islamic financial environment. Forthcoming in: Journal of Independent Studies and Research , Vol. 8, No. 2 (July 2010)

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Abstract

Continuous growth in Islamic finance calls for studying the framework in which the monetary policy maker (i.e., central bank) performs its functions. Central banks in Muslim countries are using various instruments for monetary policy purpose including interest rate. As a result, Islamic financial institutions (IFIs) are facing issues in benchmarking the price of financial instruments. Acceptable solution to benchmarking lies in the presence of a real economic activity in the base of any proposal and its feasibility for business performance when put against conventional banking. This paper presents empirical evidence of statistical equivalence of nominal GDP growth rate and official interest rate for ‘advanced,’ ‘all,’ and some Muslim countries. We propose nominal GDP growth rate as benchmark for pricing domestic financial transactions of IFIs as well as for pricing external bilateral/ multilateral loans. The paper also suggests nominal income targeting as monetary policy regime and provides a liquidity management mechanism for banking system in Islamic financial environment.

Item Type:	MPRA Paper
Original Title:	Central banking and monetary management in islamic financial environment
Language:	English
Keywords:	Islamic Finance; Central Bank; Interest Rate; Nominal Income Targeting, Liquidity Management
Subjects:	G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
Item ID:	23548
Depositing User:	Nadim Hanif
Date Deposited:	29 Jun 2010 01:56
Last Modified:	26 Sep 2019 08:11
References:	Chapra, Umer M. (1983), “Monetary Policy in an Islamic Economy,” Islamabad: Institute of Policy Studies Economist (2007), “Closing the Valve,” The Economist, London, Print Edition, June 14 Fuhrer, Jeff and George Moore (1995), “Inflation Persistence,” Quarterly Journal of Economics, February, pp 127-159 Khan, Muhammad A. (1982), “Inflation and the Islamic Economy: A Closed Economy Model,” International Centre for Research in Islamic Economics, King Abdul Aziz University Press, Jeddah Khan, Muhammad A. (2004), “Elimination of Interest: A Proposed Strategy,” Renaissance. Vol 14, Issue 1 Kurrihara, K.K. (1951), "Monetary Theory and Public Policy," London Reddy, B. Muralidhar (2001), “Of Religion and Economics,” Frontline, Vol. 18, No. 11 Siddiqui, Muhammad N. (1982), “Monetary Policy: A Review,” International Centre for Research in Islamic Economics, King Abdul Aziz University Press, Jeddah Usmani, Muhammad T. (2003), “Islam Aur Jadid Maeeshat-o-TIjaraht,” Maktaba Mua’ariful Quran, Karachi Uzair, Mohammad (1982), “Central Banking in an Interest-Free Banking System,” in Mohammad Arif (ed.) ‘Monetary and Fiscal Economics of Islam,’ pp. 211-235, International Centre for Research in Islamic Economics, Jeddah Zangeneh, Hamid and Salam, Ahmed (1993), “Central banking in an Interest Free Banking System,” JKAU, Islamic Economics, Vol. 5, pp. 25-36
URI:	https://mpra.ub.uni-muenchen.de/id/eprint/23548

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• Central banking and monetary management in islamic financial environment. (deposited 28 May 2010 05:58)
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