Islamic Monetary Economics: Insights from the Literature

Md Akther Uddin

MPRA Paper from University Library of Munich, Germany

Abstract: This chapter reviews critical early literature of Islamic monetary economics. The prohibition of Riba has imposed challenges on Islamic economists to come up with the viable alternatives to achieve Islamic monetary policy goals. Our extensive review of theoretical and empirical literature indicates that equity based profit- and loss-sharing instruments have been proposed for conducting open market operations in an interest-free economy. Theoretically, the central bank can achieve desired goals by controlling money supply and profit-sharing ratios. The findings from empirical literature suggest that money demand tend to be more stable in an interest-free economy. Whether monetary transmission works through Islamic banking channel is controversial, but the literature is growing. These findings are not surprising as majority Muslim countries lack sustainable and equitable economic growth. Moreover, these countries suffer from higher inflation and unemployment with little or no monetary freedom due to fixed exchange rate regime, shallow financial markets and strict capital control.

Keywords: Islamic monetary policy; interest-free economy; monetary policy instruments (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cba, nep-isf, nep-mac and nep-mon
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Published in Islamic Monetary Economics and Institutions Theory and Practice (2020): pp. 39-53

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:102887

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