MONETARY POLICY IN AN ISLAMIC ECONOMICS

Abstract

The primary aim of this paper is to elucidate the general concept of monetary policy under Islamic Economics. Not only does the stability of but also the growth of the economy in a country strongly depends upon monetary policy implemented. Such the phenomenon also prevails in Islamic Economics in which the term is also ruled by the Holy Quran and the Hadith of the Prophet. Moreover, the Prophet issued some regulations regarding monetary, such as to adopt Dinars and Dirhams as the Islamic currencies. It is noted that, however, the thing distinguishing between Islamic Economics and other economic systems is concerning the variable of interest or usury, where either the Holy Quran or the Hadith clearly states that it is banned. Due to using interest as the yardstick, the conventional monetary instruments such as Open Market Operation, Discount Rate and the likes are not considered as the monetary instruments under Islamic Economics. Therefore, Instead of interest, Islamic Economics adopts Pro it Loss Sharing (PLS) system, regarded as the important part of monetary policy. Moreover, Islamic Economics has also its speci ic monetary standard and instruments, which are far from interest or riba-based variables, such as musharakah certi icates and others.