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Indirect Instruments Of Monetary Control In An Islamic Financial System

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  • CHOUDHRY, NURUN N.

    (Senior Economist and Executive Director)

  • MIRAKHOR, ABBAS

    (Senior Economist and Executive Director)

Abstract

This paper discusses the instruments of monetary control in a marketoriented Islamic financial system, highlighting the relative advantages of indirect instruments. In this context, it proposes equity-based government securities with rates of return based on budgetary surplus. Such rates are imbedded in the concept of social rate of return and are consistent with Quranic prohibition against the payment and receipt of interest. The paper discusses the use of such securities in indirect method of monetary control, thereby enhancing the role of price signal and improving market incentives in the development of Islamic financial system. The paper concludes that, in the transition to the Islamization of the banking and financial sectors, the indirect instruments can improve economic efficiency with parallel reform in these sectors as well as concomitant actions.

Suggested Citation

  • Choudhry, Nurun N. & Mirakhor, Abbas, 1997. "Indirect Instruments Of Monetary Control In An Islamic Financial System," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 4, pages 28-65.
    • Handle: RePEc:ris:isecst:0097
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    References listed on IDEAS

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    1. Mr. S. H. Axilrod, 1995. "Transformation of Markets and Policy Instruments for Open Market Operations," IMF Working Papers 1995/146, International Monetary Fund.
    2. Mr. Tomás J. T. Baliño & Mr. Charles Enoch & Mr. William E. Alexander, 1995. "The Adoption of Indirect Instruments of Monetary Policy," IMF Occasional Papers 1995/008, International Monetary Fund.
    3. Mr. R. B. Johnston, 1993. "Aspects of the Design of Financial Programs with the Adoption of Indirect Monetary Controls," IMF Policy Discussion Papers 1993/016, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Abbas Mirakhor, 2014. "Foundations of risk-sharing finance: an Islamic view," Chapters, in: Mervyn K. Lewis & Mohamed Ariff & Shamsher Mohamad (ed.), Risk and Regulation of Islamic Banking, chapter 6, pages 107-128, Edward Elgar Publishing.
    2. di Mauro, Filippo & Caristi, Pierluigi & Couderc, Stéphane & di Maria, Angela & Ho, Lauren & Grewal, Beljeet Kaur & Masciantonio, Sergio & Ongena, Steven & Zaher, Sajjad, 2013. "Islamic finance in Europe," Occasional Paper Series 146, European Central Bank.
    3. Ms. Faezeh Raei & Mr. Selim Cakir, 2007. "Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk?," IMF Working Papers 2007/237, International Monetary Fund.
    4. Uddin, Md Akther, 2016. "Reemergence of Islamic Monetary Economics: A Review of Theory and Practice," MPRA Paper 72081, University Library of Munich, Germany.
    5. Uddin, Md Akther, 2014. "Can GDP growth rate be used as a benchmark instrument for Islamic monetary policy?," MPRA Paper 67696, University Library of Munich, Germany.
    6. Haque, Nadeem ul & Mirakhor, Abbas, 1999. "The Design of Instruments For Government Finance in An Islamic Economy," MPRA Paper 56028, University Library of Munich, Germany.
    7. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(2), pages 95-113, December.
    8. Shaukat, Mughees & Mirakhor, Abbas & Krichene, Noureddine, 2013. "Fragility Of Interest-Based Debt Financing: Is It Worth Sustaining A Regime Uncertainty?," MPRA Paper 56362, University Library of Munich, Germany.
    9. Mirakhor, Abbas, 2010. "Whither Islamic Finance? Risk Sharing in An Age of Crises," MPRA Paper 56341, University Library of Munich, Germany.
    10. Uddin, Md Akther & Halim, Asyraf, 2015. "Islamic monetary policy: Is there an alternative of interest rate?," MPRA Paper 67697, University Library of Munich, Germany, revised 07 Jun 2015.
    11. Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 2007/117, International Monetary Fund.
    12. Mirakhor, Abbas, 2012. "Islamic Finance, Risk Sharing and Macroeconomic Policies," MPRA Paper 56338, University Library of Munich, Germany.
    13. Kabir, Anis & Abdul Rehman Shah, Syed Muhammad & Hassan, M. Kabir & Akmal, Muhammad, 2022. "The Transmission Mechanism of Monetary Policy via Bank’ Balance Sheet: An Empirical Study of Dual Banking System in Pakistan," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(2), pages 129-140.
    14. Andrew C. Worthington & Alsadek H. Gait, 2009. "A Primer on Islamic Finance: Definitions, Sources, Principles and Methods," Discussion Papers in Finance finance:200909, Griffith University, Department of Accounting, Finance and Economics.
    15. Tahir, Sayyid, 2013. "Fiscal and Monetary Policies in Islamic Economics: Contours of an Institutional Framework," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 21, pages 1-22.
    16. Uddin, Md Akther & Ali, Md Hakim & Radwan, Maha, 2019. "Can GDP Growth Linked Instrument Be Used For Islamic Monetary Policy?," MPRA Paper 102888, University Library of Munich, Germany.

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