Modern monetary theory or Islamic monetary theory of value ? : evidence from Malaysia

Abstract EN

The purpose of this study is to contrast two recent monetary reform proposals involving the neo-chartalist Modern Monetary Theory (MMT) and the metallist Islamic Monetary Theory of Value (IMTV).

Money is the common denominator for all economic transactions and yet, under the fiat standard, we have witnessed an exponential increase in prices and 425 instances of monetary, debt, and financial crises.

Therefore, genuine monetary reform must protect the store of value function of money over the long term to protect wealth from confiscation by inflation thereby ensuring monetary and economic stability.

This study adopts an MMT sectoral balance analysis of Malaysian macroeconomic data, as well as an IMTV analysis of Malaysian macroeconomic and gold price data to evaluate the effect on nominal and real prices.

It finds that MMT provides no new insights about monetary theory, while making unsubstantiated claims about macroeconomic policy that would merely extend the highly inflationary monetary policies experienced under a centralized debt-based monetary system.

Conversely, this study empirically establishes that a de-centralized monetary system based on the IMTV and the intrinsic value of pure gold (or silver), maintains its purchasing power and ensures that real prices are low and stable over the long term.