[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/wly/ijfiec/v27y2022i1p993-1008.html
   My bibliography  Save this article

Modern money and Islamic banking in the light of Islamic law of riba

Author

Listed:
  • Muhammad Zahid Siddique
Abstract
Theory of Islamic banking is based on neoclassical theory of money and banking which assumes that money is a neutral lubricant that facilitates exchange while bank is an intermediary institution that equates savings and investments in the economy. Endogenous money supply has demonstrated the fallacy of these assumptions by showing that it is not the deposits that create loans, rather the other way round. Unlike commodity money, modern money is credit, generated by the central and commercial banks in the process of advancing reserves and loans. When this correct version of money and banking is evaluated in the light of the correct understanding of riba, it becomes evident that modern money involves riba and this result is equally valid for Islamic banking. Genuine Islamic monetary and banking systems require commodity money, which may include gold and silver, such that its face value is equal to its intrinsic value and it does not represent credit. Riba is not merely a matter of eliminating the institution of interest from economic system, it is about eliminating credit‐based monetary or financial system because credit creation is as much riba as is charging interest.

Suggested Citation

  • Muhammad Zahid Siddique, 2022. "Modern money and Islamic banking in the light of Islamic law of riba," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 993-1008, January.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:1:p:993-1008
    DOI: 10.1002/ijfe.2196
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/ijfe.2196
    Download Restriction: no
    File URL: https://libkey.io/10.1002/ijfe.2196?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Giuseppe Fontana & Riccardo Realfonzo, 2005. "Introduction: The Monetary Theory of Production," Palgrave Macmillan Books, in: Giuseppe Fontana & Riccardo Realfonzo (ed.), The Monetary Theory of Production, pages 1-19, Palgrave Macmillan.
    2. Zubair Hasan, 2008. "Credit Creation And Control: An Unresolved Issue In Islamic Banking "توليد" ومراقبة الائتمان: إشكال عالق لدى المصارف الإسلامية," Papers and books based on the proceedings of the Conferences organized by the Islamic Economics Institute, KAAU. 52, King Abdulaziz University, Islamic Economics Institute..
    3. Graziani,Augusto, 2003. "The Monetary Theory of Production," Cambridge Books, Cambridge University Press, number 9780521812115, September.
    4. L. Randall Wray, 2024. "Modern Money Theory," Springer Books, Springer, edition 3, number 978-3-031-47884-0, February.
    5. Hasan, Zubair, 2008. "Credit creation and control: an unresolved issue in Islamic banking," MPRA Paper 8130, University Library of Munich, Germany, revised 07 Apr 2008.
    6. Knapp, Georg Friedrich, 1924. "The State Theory of Money," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number knapp1924.
    7. Muhammad Zahid Siddique & Mazhar Iqbal, 2016. "Theory of Islamic Banking: from Genesis to Degeneration," History of Economic Ideas, Fabrizio Serra Editore, Pisa - Roma, vol. 24(2), pages 75-110.
    8. Guglielmo Maria Caporale & Mohamad Husam Helmi, 2018. "Islamic banking, credit, and economic growth: Some empirical evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 23(4), pages 456-477, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abderraouf Ben Ahmed Mtiraoui & Feriel Gabsi, 2018. "Finance Between Islamic Ethics, Conventional Reality and Economic Growth in the MENA Region [La finance entre l’éthique islamique, la réalité conventionnelle et croissance économique dans la région," Post-Print hal-02554666, HAL.
    2. Josh Ryan-Collins, 2015. "Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935-75," Economics Working Paper Archive wp_848, Levy Economics Institute.
    3. Jo Michell, 2017. "Do Shadow Banks Create Money? ‘Financialisation’ and the Monetary Circuit," Metroeconomica, Wiley Blackwell, vol. 68(2), pages 354-377, May.
    4. Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Juan Hernández Andreu & Guido Tortorella Expósito, 2014. "Incertidumbre, ciclo económico y crisis según el enfoque continuista del pensamiento keynesiano [Uncertainty, economic cycles and economic crises according to the continuism approach of Keynesian t," Iberian Journal of the History of Economic Thought, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Dpto. Historia e Instituciones Económicas I., vol. 1(1), pages 44-72, September.
    6. Phil Armstrong, 2020. "Can Heterodox Economics Make a Difference?," Books, Edward Elgar Publishing, number 19964.
    7. L. Randall Wray, 2014. "Outside Money: The Advantages of Owning the Magic Porridge Pot," Economics Working Paper Archive wp_821, Levy Economics Institute.
    8. Thomas I. Palley, 2015. "Money, Fiscal Policy, and Interest Rates: A Critique of Modern Monetary Theory," Review of Political Economy, Taylor & Francis Journals, vol. 27(1), pages 1-23, January.
    9. Dinc, Yusuf, 2016. "A Suggestion on Mortgage Financing of Islamic Banks: Diminishing Musharakah," MPRA Paper 85335, University Library of Munich, Germany, revised 07 Feb 2017.
    10. Dinc, Yusuf, 2017. "The Functioning and Accounting of Musharakah Financing in Participation Banks and Firms; Problems and Recommendations," MPRA Paper 85336, University Library of Munich, Germany.
    11. Mtiraoui, Abderraouf & Lassoued, Mongi & Hassen Khémiri, Hend, 2019. "Le développement de la finance islamique entre la tendance et la durabilité dans la région MENA : Application sur les données de panel [The Development of Islamic Finance Between Trend and stabilit," MPRA Paper 94804, University Library of Munich, Germany.
    12. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    13. Hasan, Zubair, 2011. "Money creation and control from Islamic perspective," MPRA Paper 39796, University Library of Munich, Germany, revised 21 Dec 2011.
    14. Eric Tymoigne, 2017. "On the Centrality of Redemption: Linking the State and Credit Theories of Money through a Financial Approach to Money," Economics Working Paper Archive wp_890, Levy Economics Institute.
    15. Lassoued, Mongi, 2018. "Comparative study on credit risk in Islamic banking institutions: The case of Malaysia," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 267-278.
    16. Hasan, Zubair, 2008. "Ialamic finance education at graduate level: Current position and challenges," MPRA Paper 8615, University Library of Munich, Germany.
    17. José Alves & João Quental Gonçalves, 2022. "How Money relates to value? An empirical examination on Gold, Silver and Bitcoin," Working Papers REM 2022/0222, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    18. Hasan, Zubair, 2008. "Islamic Banks: Profit sharing, equity, leverage lure and credit control," MPRA Paper 11737, University Library of Munich, Germany, revised Nov 2008.
    19. Garzón Espinosa, Eduardo & Cruz Hidalgo, Esteban & Medialdea Garcia, Bibiana & Sanchez Mato, Carlos, 2023. "Money or Crypto-Gold? Problematics and Possible Worlds for Cryptocurrencies," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 76(3), pages 429-452.
    20. Ahmad M. Mashal, 2012. "Islamic Financial in the Global Financial System," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 207-223, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ijfiec:v:27:y:2022:i:1:p:993-1008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.interscience.wiley.com/jpages/1076-9307/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.