Islamic finance, contagion effects, spillovers and monetary policy

Wafik Grais and Wassim Rajhi

Journal of Islamic Accounting and Business Research, 2015, vol. 6, issue 2, 208-221

Abstract: Purpose - – The aim of this paper is to review monetary and systemic liquidity management policies that essentially aim at containing crisis and limiting their spread. A corollary is whether relevant public authorities and market participants have tools at their disposal to deal with a systemic crisis affecting Institution Offering Islamic Financial Services (IIFS). Design/methodology/approach - – The method used in this study is an examination of existing literature. This paper considers mechanisms that may help contain a crisis and those that may foster post crisis recovery in the case of conventional and Islamic finance. Findings - – The progress made to date to develop money markets accessible to IIFS is commendable; however, it is not sufficient. Licensing IIFS in dual financial systems entails a public authority responsibility linked to the authorities’ accountability for the conduct of monetary policy and systemic liquidity management. Licensing an IIFS entails acknowledging the responsibility of being able to manage a system that includes IIFS. This is feasible and possible, but the issue needs to be addressed directly. In a crisis monetary policy and systemic liquidity management will be at the forefront of the stabilization efforts. Originality/value - – The experiences of Bahrain and Malaysia in developing a monetary policy and systemic liquidity management framework for their jurisdiction are assessed. The paper identifies also channels of potential spillover effects from conventional to Islamic finance.

Keywords: Monetary policy; Islamic finance; Contagion effects; Spillovers (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-12-2012-0079

DOI: 10.1108/JIABR-12-2012-0079

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