Islamic Monetary Policy and Rastin Swap Bonds

  • Bijan Bidabad Professor, Economics and Chief Islamic Banking Advisor, Bank Melli, Iran
Keywords: Islamic Central Banking, Monetary Instrument, Rastin Swap Bond, Rastin Banking, Monetary Policy, Fiscal Policy, Finance.

Abstract

Purpose: This paper aims to examine monetary instruments in Islamic central banking framework. As a conclusion, to revive Islamic monetary policy, we should provide some public equity-based instrument as a necessary replacement for conventional bonds and treasury bills to activate non-usury open market operations.

Design: We define a type of new negotiable bond as: “Rastin Swap Bonds (RSBs)”, which is based on swapping money between two persons for two different periods.

Findings: RSB is a financial paper that observes the right for the lender to borrow an equal amount to his lending from the borrower. Four types of RSBs in domestic money and foreign currency are defined, and their Sharia allowances and monetary, fiscal, and financial effects are evaluated.

Research limitations: This bond is a novel design, and it is required to be more elaborated for further practical development and adjustment.

Practical implications: Islamic central banking is not different from conventional central banking as a whole, but the role of an Islamic central bank in conducting monetary policy is restricted to use interest-free monetary instruments in an environment that commercial banks are obliged to implement non-usury banking operations.

Social implications: Islamic financial instruments should be usury-free and efficient in applying monetary, fiscal, and financial policies at different levels of the central bank, government and commercial banks and non-banking money and financial institutions. Rastin Swap Bond will serve as an important instrument for resource mobilization and will be a primary vehicle for the development of the Islamic capital market and central banking operations.

Originality/value: Conventional interest-bearing bonds are not allowed in Islamic central banking. This restriction mostly distinguishes Islamic central banking from the conventional one in implementing monetary policy.

Article Type: Technical paper

JEL: G21, G28, H81

Downloads

Download data is not yet available.

References

Abd al-Rahman al-Gharyani, Al-Sadiq (1998) Al-Muamalat Ahkam wa_Adillah, 2nd ed. Daral-Fikr. Egypt.

Al-Salem, Fouad H. (2009) Islamic Financial Product Innovation, International Journal of Islamic and Middle Eastern Finance and Management Volume: 2, Issue: 3.

Al-Zuhayli, Wahbah (1984) Al-Fiqh al-Islami wa Adillatuh, 3rd ed., Vol. 4, Damascus: Daral-Fikr. Muhammad Wafa, Abraz, suwar al-buyu al-fasidah, Egypt.

Arham, Muhammad (2010) Islamic perspectives on marketing, Journal of Islamic Marketing Vol.: 1 Issue: 2.

Bidabad, Bijan (2004) Economic-Juristic Analysis of Usury in Consumption and Investment Loans and Contemporary Jurisprudence Shortages in Exploring Legislator Commandments. Proceeding of the 2nd International Islamic Banking Conference. The Monash University of Malaysia. 9-10 September 2004. Reprinted in: National Interest, Journal of the Center for Strategic Research, Vol. 2, No. 1, winter 2006, pp. 72-90. Tehran, Iran.

http://www.bidabad.com/doc/reba-en.pdf

Bidabad, Bijan (2010) Stabilizing Business Cycles by Profit and Loss Sharing Banking System and Ethic Economics.

http://bidabad.com/doc/pls-business-cycles.pdf

Bidabad, Bijan; Mahmoud Allahyarifard (2010). Usury-Free Bonds and Islamic Central Banking Monetary Instruments.

http://www.bidabad.com/doc/Islamic-banking-bond-en.pdf

Bidabad, Bijan (2019) Interest-Free Treasury Bonds (IFTB), Islamic Finance and Legal Clarifications, 2011. International Journal of Islamic Business & Management, 3(1), 21-29.

http://www.bidabad.com/doc/interest-free-t-bond-feqhi-en.pdf

https://www.cribfb.com/journal/index.php/ijibm/article/view/258/353

Bidabad, Bijan, Abul Hassan, Ben Ali Mohamed Sami, Mahmoud Allahyarifard. (2011). Interest-Free Bonds and Central Banking Monetary Instruments. International Journal of Economics and Finance. Vol. 3, no. 3, August, pp. 234-241.

DOI: http://dx.doi.org/10.5539/ijef.v3n3p234

http://www.ccsenet.org/journal/index.php/ijef/article/download/11665/8300

Bidabad, Bijan, Abul Hassan, Ben Ali Mohamed Sami, Mahmoud Allahyarifard (2011). Interest-Free Bonds Financial Innovation, A Monetary Instrument for Economy at Crisis. Journal of Economic Cooperation and Development (JECD). 32, 1, 55-70.

http://www.sesric.org/jecd/jecd_articles/ART10102201-2.pdf

Bidabad, Bijan (2012) Legal Analysis of Interest-Free Bonds.

http://www.bidabad.com/doc/legal-analysis-of-non-usury-bonds.pdf

Bidabad, Bijan. (2014). New Operational Islamic Banking System, Volume One, Theoretical Foundations, LAP Lambert Academic Publishing, OmniScriptum GmbH & Co. KG, ISBN: 978-3-659-54463-7.

Bidabad, Bijan. (2014). New Operational Islamic Banking System, Volume Two, Application Issues, LAP Lambert Academic Publishing, OmniScriptum GmbH & Co. KG, ISBN: 978-3-659-55210-6.

Bidabad, Bijan. (2014) General monetary equilibrium. Lap Lambert Academic Publishing, OmniScriptum GmbH & Co. KG, ISBN: 978-3-659-54045-5.

Bidabad, Bijan, Abul Hassan (2017), Dynamic Lag Structure of Deposits and Loans Interest Rates and Business Cycles Formation. Journal of Financial Regulation and Compliance, Vol. 25 Issue: 2, pp.114-132.

http://dx.doi.org/10.1108/JFRC-09-2016-0078

Bidabad, Bijan, Rastin Certificate Market (RCM), Complementary System of Rastin Banking, 2013. International Journal of Islamic Business & Management, 3(1), 35-43, 2019.

https://www.cribfb.com/journal/index.php/ijibm/article/view/260

http://www.bidabad.com/doc/rastin-bank-rcm-en.pdf

Bidabad, Bijan (2018), General Regulatory Framework in Rastin Profit and Loss Sharing Banking (Part I-Operational Context). Journal of Business and Finance in Emerging Markets, JBFEM, [S.l.], v. 1, n. 1, p. 11-26, May. ISSN 2580-5568.

https://doi.org/10.32770/jbfem.vol111-26

http://www.bidabad.com/doc/rastin-regulatory-en-I.pdf

Bidabad, Bijan (2018), General Regulatory Framework in Rastin Profit and Loss Sharing Banking (Part II-Legal Groundwork). Journal of Business and Finance in Emerging Markets, JBFEM, JBFEM, [S.l.], v. 1, n. 2, p. 109-126, Nov. ISSN 2580-5568.

https://doi.org/10.32770/jbfem.vol1109-126

http://www.bidabad.com/doc/rastin-regulatory-en-II.pdf

Bidabad, Bijan (2019), General Regulatory Framework in Rastin Profit and Loss Sharing Banking (Part III-Auxiliary Provisions). Journal of Business and Finance in Emerging Markets, JBFEM, May, Vol 2, No. 1, pp. 51-65. ISSN 2580-5568.

https://doi.org/10.32770/jbfem.vol251-66

http://www.bidabad.com/doc/rastin-regulatory-en-III.pdf

Chapra, M. U. (1983). Monetary Policy in An Islamic Economy. In Ziauddin Ahmad, et al., eds., Money and Banking in Islam, Islamabad: Institute of Policy Studies, pp. 27-68.

Chapra, M. U. (1985). Toward Just a Monetary System. Journal of King Abdul Aziz University: Islamic Economics, Vol. 2, 109-115.

Chapra, M.U. (1996), Monetary Management in an Islamic Economy, Islamic Economic Studies, Vol. 4, No. 1, December.

Federal Reserve (1913), Federal Reserve Act. December 23. http://www.llsdc.org/attachments/files/105/FRA-LH-PL63-43.pdf

Khan, M. Akram (1982) Inflation and the Islamic Economy: A Closed Economy Model, in M. Ariff (ed.), Monetary and Fiscal Economics of Islam. Jeddah: International Centre for Research in Islamic Economics.

Mansoori, M. T. (2010) Fiqh Regulations on Finance and Business Transaction, Ulil Alba Institute, Pasca Sarjana Universitas Ibn Khaldun, Bogor, Indonesia.

Mills, P. S and Presley, J. R. (1999). Islamic Finance: Theory and Practices. Palgrave McMillan, USA.

Moody’s (2007). Focus on the Middle East. Inside Moody’s, Winter, p. 4.

Moody’s (2008). Focus on the Middle East. Inside Moody’s, Winter, p. 4.

Rabin, A. A. (2004). Monetary Theory, Edward Elgar Publishing, Massachusetts, USA.

Siddiqi, M. Nejatullah (1982) Islamic Approaches to Money, Banking and Monetary Policy: A Review, in M. Ariff (ed.), Monetary and Fiscal Economics of Islam. Jeddah: International Centre for Research in Islamic Economics.

Sole, J. (2007) Introducing Islamic Banks into Conventional Banking System. Working Paper No. 07/175, IMF, Washington, DC.

Tawfiq Ramadan al-Buti, M.; (1998) Al-Buyu al-Shaiah wa Athar Dawabit al-Mabi ala Shariyyatiha, Beirut: Dar al-Fikr al-Muasir, PP. 370-378.

Wilson, R. (2008). Innovative in the Structuring of Islamic Sukuk securities. Humanomics, Vol. 24 (3), 170-181

Published
2019-05-25
How to Cite
Bidabad, B. (2019). Islamic Monetary Policy and Rastin Swap Bonds. International Journal of Islamic Banking and Finance Research, 3(2), 1-16. Retrieved from https://www.cribfb.com/journal/index.php/ijibfr/article/view/269
Section
Articles