Central bank in Islamic economics : Islamic central banking

Fatawa Question

Dear Br. Monzer Kahf Assalamu Alaykum Wa Rahmatullah E Wa Barakatuh Hope you are fine I want to discuss an important issue regarding the conduct of central banking in an Islamic system of Economy. There is an important book “transition to a Riba free economy” of Mr. Waqar Masood Khan Ex secretary finance government of finance Pakistan, the summary of his argument is presented below : The reserve requirement for commercial banks as in conventional banking (Statutory Liquidity requirement and cash reserve requirement to avoid loss of default) will be same in an Islamic system ; the only difference will be of cause for which reserves are held with central bank I. e. these reserves will be used as an equalizers of profit announced by commercial banks in event of they suffer loss and further central bank will invest these reserves on the basis of Musharakah arrangements. Sir my questions are, 1. Whether a central bank also has a commercial and business participatory role in an Islamic Economic System rather than supervisory and regulatory role ? 2. Whether a central bank should act as a trading organization ? 3. If central bank earns profit on Musharakah Investment of said reserves of commercial banks what portions of profit will be given to commercial banks ? 4. What will be the basis of apportionment of profit ? Furthermore please recommend me any book that deals with taxation system in an Islamic economy. I will be extremely thankful to you. Regards Asim Bashir Khan

Fatwa

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Publication Date

2010-08-22

Main Subjects

Financial and Accounting Sciences
Islamic Studies

Topics

• Banks
• Islamic jurisprudence
• Economic systems
• Management
• Central banks
• Bank reserves
• Usury
• Banking services
• Islamic Banks

No. of Pages

2

Data Type

Fatawa

Language

English

Record ID

BIM-730846

• APA
• MLA
• AMA