salman syed ali dlc lecture 23 november 2010 money and banking in islam
TRANSCRIPT
Salman Syed AliDLC Lecture
23 November 2010
Money and Banking in Islam
Two Parts of the Presentation:MoneyBanking
Discussion of money in fiqh (riba, gharar, forward contracts, foreign exchange transactions, and debt transactions)
Inference on money from hadith on riba al-fadal
Economists’ explanation of money (related literature)
Source for this graph :Taken from the Clarendon Lecture “Evil is the Root of all Money” by Kiyotaki, Nobuhiro and John Moore (2001)
Source:Taken from the Clarendon Lecture “Evil is the Root of all Money” by Kiyotaki, Nobuhiro and John Moore (2001)
Graph based on the Clarendon Lecture “Evil is the Root of all Money” by Kiyotaki, Nobuhiro and John Moore (2001)
Source:Taken from the Clarendon Lecture “Evil is the Root of all Money” by Kiyotaki, Nobuhiro and John Moore (2001). My arguments added.
Source:Taken from the Clarendon Lecture “Evil is the Root of all Money” by Kiyotaki, Nobuhiro and John Moore (2001). My arguments added.
IssuesOutside MoneyInside MoneyCredit Creation vs Investment CreationThe multiplier process is the result of the
behavioral and institutional factors including the fractional reserve banking system but not of interest alone.
Interest accelerates the multiplier affect to run away faster than real economic growth.
GoldGold SilverSilver WheatWheat BarleyBarley DatesDates SaltSalt
GoldGold
SilverSilver
WheatWheat
BarleyBarley
DatesDates
SaltSalt Source for this slide: Sami Al-Suwailem’s presentation on riba
The Principle of SimilaritySimilarity negates gain from tradeVariety allows mutual benefitDiversity is essential for prosperityStronger similarity imposes stronger
restrictions of exchangeRiba: imbalanced exchange of similars
At least two monies needed in Islamic economy.
Role of Bank in Islamic FinanceBanks in Islamic finance exist not just to
make IOUs tradable (i.e., not simply to create inside money), however they do create it to the extent they hold demand deposits.
But they exist to provide specialization and diversification services in investments to their depositors and financing to their clients (entrepreneurs).
Three Models of Islamic Banking
Issues in Model-1Liquidity ManagementMarket RiskInsolvency RiskWithdrawal Risk
Stability
Three Models of Islamic Banking
Issues in Model-2Liquidity ManagementMarket RiskInsolvency RiskWithdrawal Risk
Stability
•Commodity Murabaha as liquidity management device•Treasury instrument
Three Models of Islamic Banking
Issues in Model-3Liquidity ManagementMarket RiskInsolvency RiskWithdrawal Risk
Stability
Commodity Murabaha as:• SOURCE OF FUND• instrument for maturity transformation
Use of Commodity Murabaha as Source of Funds