Islamic Money and Banking E-Book

Iraj Toutounchian

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Finance Editions
• Sprache: Englisch

Seitenzahl: 733

Veröffentlichungsjahr: 2011

Beschreibung

This book examines how money, in the absence of interest (Riba) and money market can become an endogenous variable of an economic system. It further tries to integrate money in capital theory and to make monetary sector part of the real sector aiming at removing the problems that arise from separation of the two.

Leseprobe

Dedication

In the name of Allah, the Compassionate, the Merciful

Acknowledgments

My greatest intellectual debt in the preparation of this book goes back many years to my undergraduate and graduate years, when some of my instructors had the greatest impact in shaping my ideas. My special thanks are extended to Professor M. Agah of Tehran University; my Ph.D. dissertation supervisor Professor A. S. DeVany; Professor T. Saving; and Professor R. L. Basmann, all from Texas A & M University.

It is hard for me to resist the temptation to dedicate this book to my wife, Soussan Parsay, whose cooperation and support through long years of my reading, thinking and writing, have greatly obviated conflict and increased our family's utility in many different ways. Her responsibilities, both at the university and the hospital, hardly interfered with those of the family circle. I have been blessed by Allah (SWT) with a happy marriage and lovely children: Pouneh, Miladamir and Amirhossein.

I am grateful for the valuable comments on the draft of the book from the anonymous referee(s) assigned by the publishers.

A special word of thanks is owed to John Owen for his able assistance in resolving the ambiguities arising from my writings during his editing endeavor. He, to me, was more than just an editor; he also improved the quality of my arguments throughout the manuscript. Whatever errors may have crept in spite of the help I have received are, of course, mine.

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Library of Congress Cataloging-in-Publication Data:

ISBN 978-0-470-82319-4

Typeset in 10.5/13pt Sabon by Laserwords Private Limited, Chennai, India.

Printed in Singapore by Saik Wah Press Pte. Ltd.

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In the name of Allah, the Compassionate, the Merciful

Table of Contents

Dedication

Acknowledgments

Preface

Chapter 1: An Evaluation of Money: A New Perspective

Commodity Money

Metallic Money

Dinar and Dirham (D-D)

What is (paper) Money?

An Impure Public Good

Quantity Theory of Money and a Country's Balance Sheet

Functions of Money in an Islamic Setting

The General Theory as Monetary Theory

Cooperation in Islam

A Just Voting System

Islamic Foundation of Norms for Cooperation

Equivalence between Functions of and Demand for Money

Chapter 2: Interest on Money and Its Scope

A Brief History of Interest

The Place of Interest in Capitalist Economics

The Place of Labor

Western Justifications for Interest

Time Preference and its Relation to the Rate of Interest

Is Time Preference Positive in all Circumstances?

Some Further Thoughts on Interest

Exchange Cost, Seigniorage and Inflation

The Socially Optimal Provision of Money in the Capitalist System

Interest (Riba) in Islam

Chapter 3: A Legal Perspective on Islamic Finance

Capital Theory: A Brief Recapitulation

The Legalities of Money and Capital

Money and Capital Reconsidered

Supply of Money Unidentified

Extended Model

Implications of the Model

Chapter 4: Interest: Fact and Fiction

The Place of Man in the Economic System

The Evils of Interest

Chapter 5: Islamic Banking versus Conventional Banking

The Structure and Functions of Banking

Underlying Conditions for Success in Islamic Finance

The Philosophical Foundations of the Place and the Ultimate Goal of Man

Islamic Modes of Finance

Islamic Bank Structure

Islamic Contracts

New Products

Chapter 6: The Role of Conventional and Islamic Banks in Investment: Certainty and Risk Conditions

Introduction

Investment in a Capitalist Economy

Investment Expenditure: A Function of Interest Rate?

Investment in an Islamic Economy

Portfolio Management for Households

Chapter 7: The Role of Central Banks in Islamic Banking

Revising Roles: Learning From Experience

Revisions (beyond amendments)

The Role of the Central Bank in Islamic Banking10

Assertions

Classification of Islamic Modes of Contract

Application of IRR and Zero Cost of Capital14

The Transmission Mechanism for Creating Money

Bibliography

Index

Chapter 1

An Evaluation of Money: A New Perspective

Commodity Money

In this section, we go back to primitive societies. Let us immerse ourselves just for a moment or two in the archaeological record, and let us imagine different tribal peoples scattered seasonally on a plateau, each occupying a terrain of its own. Such imaginings are informative and relevant to our purpose here.

Following the period of pure self-sufficiency in such tribal societies, where there were no surplus commodities to trade, these peoples began to exchange commodities, a system known as a pure barter economy, where goods are directly exchanged for other goods. Obviously, that must have been what William Stanley Jones (1835–82) referred to as “a double coincidence of wants” so that a transaction was completed. The ratio of commodity A to B is said to be the exchange rate (or price). The simplest and most rational method which could have been used was that this ratio be determined on the basis of labor hours embodied in each exchangeable commodity (that is, the essence of the labor theory of value). If in such a society, there were only five commodities—A, B, C, D, and E—the number of imaginable transactions could be determined by the ratio:

1.17

whose set is as follows:

1.18

When the array of goods expands and gives rise to frequent trading with other tribes, the number of prices increases geometrically. If there were only 1,000 goods in the economy but there was no money (or monetary unit) of accounting, people could exchange every good for the remaining 999 goods. Therefore:

We do not know for certain how long it took primitive societies to reach a higher state of economic well-being. However, it is reasonable to assume that there was a period in which one of the existing commodities was voluntarily chosen by a tribe as the unit of account, which can be called “commodity money.” Thus, the individuals in this economy would be satisfied with only N – 1 rates of exchange, or, in this case, 999. Therefore, the use of “commodity money” would reduce the number of rates of exchange, in this instance to one five-hundredth, of what they would be without such a system. It is obvious that this reduction in the number of relative prices would make economic life less costly and would facilitate trade.

Typically, the commodity money used in such societies as a unit of account is the same as the medium of exchange.