The Moral Content of Monetary History

2013 ◽  
pp. 65-99
Keyword(s):  
Interest Rate ◽  
Open Economy ◽  
Phenomenological Model ◽  
Analytical Method ◽  
Functional Approach ◽  
Real Economy ◽  
The Real ◽  
Monetary System ◽  
Moral Content ◽  
Unity Of Knowledge

The previous chapters are carried forth with a greater emphasis on money and the real economy with the financial bridge between these systems. The argument of the gold-backed monetary system is explained from both the historical and contemporary viewpoints. The phenomenological model of unity of knowledge is applied to the case of monetary and real economy systems with the financial connection. The open economy case of trade in the absence of interest rate is examined. The analytical method of circular causation in this regard is pointed out as a functional approach that is taken up profusely throughout this work.

The Future of Monetary Reform and the Real Economy

2013 ◽  
pp. 307-338
Keyword(s):  
Interest Rates ◽  
Gold Standard ◽  
Formal Model ◽  
Banking System ◽  
Real Economy ◽  
Monetary Reform ◽  
The Real ◽  
Monetary System ◽  
Analytical Result ◽  
Unity Of Knowledge

The further analytical result derived from the previous chapters on the money and real economy relationship with financial bridging in a gold-standard system is now further extended to the requirement of the 100% Reserve Requirement Monetary System with the Gold-Standard. The formal model in this regard is developed in order to bring out the power of unity of the ethical worldview of avoiding interest rates and its replacement by trade instruments. The relationship between the Central Bank, commercial banks, and the real economy with the interest-replacing trade instruments is explained. The resulting configuration of the financial and banking system in this regard under the episteme of unity of knowledge is made to explain how stabilization is attained in this same kind of epistemic worldview and its monetary and real economy interrelationship. Thus, the socio-cybernetic worldview of pervasive complementarities, equivalently participation, representing unity of knowledge in the good things of life, is once again expounded.

Micro-money, finance and real economy interrelationship in the framework of Islamic ontology of unity of knowledge and the world-system of social economy

2018 ◽  
Vol 45 (2) ◽  
pp. 445-462 ◽  
Author(s):  
Masudul Alam Choudhury
Keyword(s):  
Real World ◽  
Social Economy ◽  
Well Being ◽  
Social Implications ◽  
Real Economy ◽  
Reserve Requirement ◽  
Content Type ◽  
The Real ◽  
Monetary System ◽  
Unity Of Knowledge

Purpose The purpose of this paper is to explain the structure of Islamic monetary transformation into 100 percent reserve requirement monetary system in terms of the foundational epistemology of the unity of divine knowledge (tawhid). This approach is a scholarly originality in the field of epistemological formalism concerning Islamic theory and perspectives in economic reasoning in comparative perspectives. Design/methodology/approach The role of micro-money pursuing projects and real economic exchange relations is shown to arise by a natural causality in the ethical social economy (SE). This results in a microeconomic perspective of the quantity theory of money with ethical and social implications. A comparative study of endogenous money in the quantity theory of money points out significant differences between the theory of endogenous money in Islam and mainstream methodologies. A formal model of micro-money and its organismic endogenous relationship with the real economy is formulated with the goal of realizing social well-being, economic stabilization, and sustainability of development regimes. Findings This is a conceptual paper, though with the potential for continued work in applying the theory of micro-money in the Islamic methodological perspective of unity of knowledge. This is an original contribution of this paper. Islamic economists have not been able to produce a rigorous theory of micro-money. They have also not been able to situate the study of Islamic economics with its specific contribution to the field of the nature of money in project-specific financing of Islamic projects by the money-finance-real economy inter-causal relations. Thus, the findings of this paper, though of the conceptual nature, open doors to a vast field of methodological development and its application to the problem of micro-money modeling. Such a conceptual finding arising from the methodological theory of unity of knowledge and applied to the topic of micro-money along with some examples of potentiality of these approaches constitutes a vastly original field of findings as contribution. Thereby, an analytical model is established in the Islamic social economy (ISE) perspective. The model is used to explain monetary transmission and functioning of monetary policy with instruments that avoid interest rate and comply with Islamic financing requirements. The resulting model of money, finance, and real economy (MFE) systemic interrelationship in reference to the epistemology of unity of knowledge leads into the construction of a 100 percent reserve requirement monetary system with the gold-backed micro-money as currency complementing real economic transactions. Research limitations/implications The present paper is of a conceptual type based on the essential ontological and epistemological foundation of Islamic social and economic thought and bearing a deeply scientific implication. The conceptual part of this paper becomes a study in the foundations. The second part follows into the study of application in the real world of micro-money in terms of financing projects. Micro-money pursues projects in the Islamic economy due to its very nature of ethical and social choices. The paper shows that such a micro-money transmission is realized by the money-finance-real economy integrated model. Thereby, some real-world examples of such transformations are given. All these together substantiate the conceptual-analytical-empirical nature of the study conducted. Practical implications The development of the micro-money transmission system of generalized circular causation interrelations between MFE activities as a return to 100 percent reserve requirement monetary system with the gold standard is the profound theory that has been propounded. Its applied perspectives are implied through the MFE-model wherein micro-money pursues social projects. Furthermore, the possibility and practicality of such a conceptual model of micro-money and its transmission mechanism in the real economy are established by real-world examples of kinds of micro-money that are found to circulate or are recommended by some studies in the literature. Social implications The conceptual part of the paper presents a model of generalized epistemological model of unity of knowledge characterizing the MFE circular causal interrelations as the organismic meaning of social ethics and evolutionary learning. The social implications are the epistemic foundations of the derived model in the midst of choices of life-fulfillment projects that micro-money finances and the economy sustain. Originality/value This is an original paper premised on the general and the specific Islamic epistemological criterion of unity of knowledge as a generalized system theory. It is now particularized to the case of money and real economy by using the Islamic perspective of creating conditions to regenerate resources continuously in SE with ethical implications. The paper is equally informative to all who like to understand the social and ethical nature of endogenous relations between money and the real economy as two great institutions of the national economy. These together bestow well-being to the society at large in the construction of SE. Specific attention in this regard is given to ISE.

scholarly journals The Future of Monetary Reform and the Real Economy: A Problem of Trade Versus Interest

2012 ◽  
Author(s):  
Masudul Alam Choudhury ◽  
Sofyan Syafri Harahap
Keyword(s):  
Interest Rate ◽  
Inverse Relationship ◽  
Resource Mobilization ◽  
Real Economy ◽  
Monetary Reform ◽  
Reserve Requirement ◽  
The Real ◽  
Monetary System ◽  
Life Itself ◽  
Institutional Relations

The prologue is our starting premise.   The Qur’an (2: 275) declares, “As for those who devour interest, they behave as the one whom Satan has confounded with his touch. Seized in this state they say: ‘Trade is but a kind of interest’, even though Allah has made trade lawful, and interest unlawful”.   Keynes (1930, p. 368) picked up such wisdom of the inverse relationship between trade and interest and wrote, “The strenuous purposeful moneymakers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.”   Such are the messages of moral highness and wisdom picked up in this paper. The fundamental point here is to establish the fact that the only way of phasing out interest rate from Islamic activities is to understand and implement the formalism of the inverse relationship that permanently exists between trade in the good things of life and the rate of interest as the impediment to the free flow of resources into such tradable activities.   The central bank and commercial banks and fi nancial intermediaries as practitioners must understand this organic relational concept of intellection in relation to money and the real economy. The monetary system and the real economy with the financial instruments between would thus be shown to formalize the intellection paradigm – which indeed is a truly scientific revolution. The result is replacement of the fractional reserve requirement monetary system by the 100 per cent reserve requirement monetary system backed by the gold standard. Likewise, the organic relationships of such a monetary arrangement including its monetary policy and transmission mechanism would structurally change the nature of markets and its institutional relations and individual preferences. The result at the end will be a phased down interest rate regime into a trade-related one by the rise of the tradable relationships that are generated. The foundational methodology that enters this kind of organically relational worldview with the episteme of unity of knowledge (the divine law in Islam) provides the functional ontology of the socially and morally constructed money, production and real economy circular causation. It models the legitimacy of trade as the resource mobilization instrument, while rejecting interest as the permanent impediment of resource mobilization.   Keywords: Monetary economics, Islamic economics and finance, Islamic political economy and world-system, social economics, ethics and economics.

scholarly journals Risk Matters: The Real Effects of Volatility Shocks

2011 ◽  
Vol 101 (6) ◽  
pp. 2530-2561 ◽  
Author(s):  
Jesús Fernández-Villaverde ◽  
Pablo Guerrón-Quintana ◽  
Juan F Rubio-Ramírez ◽  
Martin Uribe
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Emerging Economies ◽  
Real Interest Rate ◽  
Small Open Economy ◽  
Real Interest Rates ◽  
The Real ◽  
Interest Rate Volatility ◽  
Business Cycle Model

We show how changes in the volatility of the real interest rate at which small open emerging economies borrow have an important effect on variables like output, consumption, investment, and hours. We start by documenting the strong evidence of time-varying volatility in the real interest rates faced by four emerging economies: Argentina, Brazil, Ecuador, and Venezuela. We estimate a stochastic volatility process for real interest rates. Then, we feed this process in a standard small open economy business cycle model. We find that an increase in real interest rate volatility triggers a fall in output, consumption, investment, hours, and debt. (JEL E13, E20, E32, E43, F32, F43, 011)

Dynamic lag structure of deposits and loans interest rates and business cycles formation

2017 ◽  
Vol 25 (2) ◽  
pp. 114-132
Author(s):  
Bijan Bidabad ◽  
Abul Hassan
Keyword(s):  
Interest Rate ◽  
Business Cycles ◽  
Interest Rates ◽  
Banking System ◽  
Real Economy ◽  
Short Term ◽  
Structural Dynamic ◽  
Content Type ◽  
The Real

Purpose This paper aims to study the structural dynamic behaviour of the depositors, banks and investors and the role of banks in the business cycles. The authors test the hypothesis: do banks’ behaviour make oscillations in the economy via interest rate? Design/methodology/approach The authors dichotomized banking activities into two markets: deposit and loan. The first market forms deposit interest rate, and the second market forms credit interest rate. The authors show that these two types of interest rates have non-synchronized structures, and that is why money sector fluctuation starts. As a result, the fluctuation is transferred to the real economy through saving and investment functions. Findings The empirical results show that in the USA, the banking system creates fluctuations in money and real economy, as well as through interest rates. Short-term interest rates had complex roots in their characteristic, while medium and long-term interest rates, though they were second-order difference equations, had real characteristic roots. However, short-term interest rates are the source of oscillation and form the business cycles. Research limitations/implications The authors tested the hypothesis for USA economy, while it needs to be tested for other economies as well. Practical implications The results show that though the source of fluctuations in the real economy comes from short-term interest rates, medium- and long-term interest rates dampen real economy fluctuations and also work as economic stabilisers. Originality/value Regarding the applied method, the topic is new.

Money, Price, Output, Interest Rate, and Factor Employment

2013 ◽  
pp. 284-306
Keyword(s):  
Interest Rate ◽  
General Equilibrium ◽  
Phenomenological Model ◽  
Economic Effects ◽  
Monetary Model ◽  
Quantity Theory ◽  
Equilibrium Study ◽  
Money Price ◽  
Unity Of Knowledge ◽  
Systemic View

This is a chapter in general-equilibrium study of the Walrasian type. It is extended to money, output, and prices along with their other important economic effects (e.g. employment and stability). The Walrasian monetary model and the quantity theory of money model are both compared and contrasted with the endogenous theory of money model in light of the systemic view of unity of knowledge that grounds the phenomenological model in this book.

Quantitative modeling of mathematical relationships in money, spending and the real economy

Kybernetes ◽  
2016 ◽  
Vol 45 (2) ◽  
pp. 323-336 ◽  
Author(s):  
Masudul Alam Choudhury ◽  
M. Ishaq Bhatti
Keyword(s):  
Economic Growth ◽  
Central Bank ◽  
Commercial Bank ◽  
Quantitative Modeling ◽  
Real Economy ◽  
Causal Relations ◽  
Content Type ◽  
The Real ◽  
Unity Of Knowledge

Purpose – The purpose of this paper is to bring out the topic of ethics and economics in reference to the nature of complementarities that can exist between monetary and fiscal activities. The connector in such complementarities is the unity of knowledge that can be generated in the inter-causal relations between monetary and fiscal activities. Design/methodology/approach – The methodology adopted is of measuring out by quantitative modeling how well there exists complementary relations or otherwise between the Central Bank and commercial bank in order to mathematically explain the role of participatory learning behavior using money, debt, and spending variables. Findings – The argument placed takes the conceptual form of result to show that there would be a prolonged extension of the non-inflationary and technological induction of economic growth in a regime of complementing money and fiscal policies. Originality/value – The role of the quantity of money in a non-inflationary economic growth is set against the background of the tripartite inter-causal relationships between the Central Bank, the commercial bank, and the real economy. Analytical methods used bring out the role of knowledge in the inter-causal relations termed as circular causation for the attainment of social well-being in response to a stable and advancing economy with the ethicality of unity of knowledge.

scholarly journals Drivers of the Cash Paradox

Risks ◽  
2021 ◽  
Vol 9 (12) ◽  
pp. 227
Author(s):  
Jacek Pietrucha
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Development ◽  
21St Century ◽  
Central Banks ◽  
Real Economy ◽  
Upward Trend ◽  
The Real ◽  
The Interest Rate

An upward trend in the share of cash in GDP has been observed since the beginning of the 21st century and has not yet been fully explained in the literature. In fact, the interest rate is the only variable that has been well researched and well confirmed as a determinant of the cash/GDP ratio. The novelty of this study is primarily considering new determinants of the share of cash in GDP (including in particular monetization and financial development), as well as testing the significance of uncertainty and institutions. The data cover the period 2001–2020 for 82 countries. The most important conclusions include: the share of cash in GDP is primarily dependent on its lagged values (payment habits) and the ultra-loose monetary policy of central banks. However, some other variables also contribute to this process—such as monetization and crises in the real economy.

Murabaha and Musharakah Moutanaquissah pricing: an interest-free approach

2020 ◽  
Vol 11 (1) ◽  
pp. 201-215 ◽  
Author(s):  
Rida Ahroum ◽  
Othmane Touri ◽  
Boujemâa Achchab
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Islamic Law ◽  
Profit Margin ◽  
Real Economy ◽  
Content Type ◽  
The Real ◽  
Reputational Risk ◽  
Valuation Methodology ◽  
The Interest Rate

Purpose This study aims to provide an interest-free valuation methodology for Murabaha and Musharakah Moutanaquissah contracts. Indeed, In Islamic finance, Murabaha contracts are widely negotiated. Their yield depends mainly on the contracted profit margin. In the current practices, this latter is based on a reference interest rate, which is highly criticized in Islamic literature, just like Musharakah Moutanaquissah contracts. In this perspective, authors suggest a new valuation methodology with parameters related to the real economy. Design/methodology/approach The authors apply an indirect method to determine a lower bound of the profit margin of a Murabaha contract. Considering Musharakah Moutanaquissah as an equivalent contract, the new valuation methodology is based on participation and focuses on parameters from the real economy: the market rent and the rate of return used for an equivalent project. Findings The results show that the pricing of Musharakah Moutanaquissah contracts could be based on several parameters linked to the real economy. Consequently, an implied value of the profit margin could be computed. Also, the interest rate is no longer implicated in the pricing of neither Murabaha nor Musharakah Moutanaquissah contracts. Research limitations/implications The valuation methodology is applicable only if the underlying asset’s financing can be made with Murabaha and Musharakah Moutanaquissah contracts. Practical implications This work will restore the link between Islamic contracts and the real economy. For Islamic banks in particular, the suggested model would reduce the exposure to reputational risk and enhance the compliance to the Sharia (Islamic Law). Originality/value Several studies have analyzed the dependence between Islamic contracts and interest rates. In general, these studies confirm this dependence and few of them have suggested alternatives. Thus, the authors contribute to the literature by providing a practical and applicable model to detach the valuation of Murabaha and Musharakah Moutanaquissah from the interest rate.

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