The Design of Instruments for Government Finance in an Islamic Economy

International Monetary Fund

No 1998/054, IMF Working Papers from International Monetary Fund

Abstract: This paper presents perhaps the most viable approach for the design of an instrument of government finance (and monetary management) in an Islamic economy where conventional transactions based on an ex-ante promise of a risk-free rate of return are forbidden. Resources to finance government infrastructural and development projects can be mobilized by issuing a national participation paper and this instrument can also serve as an instrument of monetary management. The paper discusses various conceptional issues underpinning the introduction of such an instrument and methods of calculating a corresponding rate of return. In principle, this approach has been accepted by the Islamic Republic of Iran.

Keywords: WP; rate of return; market; return on equity; central bank; Islamic banking; Treasury bills; indirect monetary instruments; market rate of return; risk premium; NPP market; price-earnings ratio; market clearing price; Stock markets; Stocks; Return on investment; Government securities; Asset prices; Middle East (search for similar items in EconPapers)
Pages: 18
Date: 1998-04-01
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Citations: View citations in EconPapers (4)

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