scholarly journals Interest-Free Treasury Bonds (IFTB): Islamic Finance and Legal Clarifications

2019 ◽  
Vol 3 (1) ◽  
pp. 21-29
Author(s):  
Bijan Bidabad
Keyword(s):  
Practical Implication ◽  
Central Banking ◽  
Secondary Market ◽  
Islamic Banking ◽  
Similar Amount ◽  
Fiscal Policies ◽  
Treasury Bonds ◽  
Treasury Bills ◽  
Competitive Price ◽  
Treasury Bond

Purpose: Although the treasury bill is the essential monetary instrument in central banking operations, its application in Islamic banking is not legitimate because it involves usury. This implies that the system cannot apply monetary and fiscal policies. To remove this obstacle “Interest-Free Treasury Bond” (IFTB) is introduced as a substitute for conventional treasury bills. Design: IFTB is a valuable paper which is issued by government treasury through a barter contract and is sold to central or commercial banks. The issuer is a debtor to the holder, and has to pay back the nominal value at maturity to the holder; in addition, the issuer is committed to lending a similar amount of money to the paper holder for an equal period. The Shariah and legal background of IFTB is explained through new contract types of “time-barter contract” and “time-loan contract”. Finding: IFTB is a zero-coupon, asset-backed note with no interest and is designed upon “debt equal to future loan”, or “loan equal to future debt” with “time-withdrawal right”. The paper holder can supply and transact her bond in the secondary market at a competitive price. Practical Implication: It can be used as a substitute for conventional treasury bills. All traditional and non-usury systems can implement IFTB. JEL: E43, E44, E52, E58, E62, E63

Interest-Free Treasury Bonds (IFTB)

2019 ◽  
Vol 2 (2) ◽  
pp. 13-21
Author(s):  
Bijan Bidabad
Keyword(s):  
Practical Implication ◽  
Central Banking ◽  
Secondary Market ◽  
Similar Amount ◽  
Treasury Bonds ◽  
Treasury Bills ◽  
Liquidity Trap ◽  
Competitive Price ◽  
Treasury Bond ◽  
The Business Cycle

Purpose: Although the treasury bill is the most important monetary instrument in central banking, its application in different phases of the business cycle, especially in a liquidity trap, is not working well. To remove this obstacle “Interest-Free Treasury Bond” (IFTB) is introduced as a substitute for conventional treasury bills. Design: IFTB is a valuable paper which is issued by government treasury through a barter contract and is sold to central or commercial banks. The issuer is a debtor to the holder and has to pay back the nominal value at maturity; in addition, the issuer is committed to lending a similar amount of money to the paper holder for an equal period. Zero interest rate is nominated for lending and borrowing. Finding: IFTB is a zero-coupon, asset-backed note with no interest and is designed upon “debt equal to future loan”, or “loan equal to future debt” with “time-withdrawal right”. The paper holder can supply and transact her bond in the secondary market at a competitive price. Practical implication: It can be used as a substitute for conventional treasury bills. All conventional and non-usury systems can implement IFTB. JEL: E43, E44, E52, E58, E62, E63

Would Stimulus without Debt Weaken the Fed’s Balance Sheet?

2018 ◽  
Author(s):  
Laurence Seidman
Keyword(s):  
Federal Reserve ◽  
Balance Sheet ◽  
Open Market ◽  
Treasury Bonds ◽  
Treasury Bond

At first glance it might seem that stimulus without debt would cause the Fed to have a balance-sheet problem. Why? When the Fed buys a Treasury bond in the open market, it obtains an asset, but if the Fed gives the Treasury a transfer, it obtains no asset. But the Fed can avoid a balance-sheet problem by taking the following action. Just before the Fed writes its transfer check to the Treasury, the Fed should order an amount of new Federal Reserve notes (from the usual place, the Treasury’s Bureau of Engraving and Printing) equal to its transfer to the Treasury and then store these notes in the Fed’s vault. Cash in the Fed’s vault is an asset on the Fed’s balance sheet, so the Fed’s total assets would increase by an amount equal to the Fed’s transfer to the Treasury—the same increase in total assets that would have occurred if the Fed had instead spent the same amount of money buying Treasury bonds.

Bilateral rebate (ibra’ mutabadal) in Islamic banking operation: a critical appraisal

2016 ◽  
Vol 9 (3) ◽  
pp. 435-452 ◽  
Author(s):  
Mohamed Fairooz Abdul Khir
Keyword(s):  
Practical Implication ◽  
Early Termination ◽  
Islamic Banking ◽  
Content Type ◽  
Early Withdrawal ◽  
Banking Policy ◽  
Early Settlement ◽  
Inductive Methods ◽  
Islamic Insurance ◽  
Financial Transactions

Purpose This study aims to examine the scholars’ views on the legality of bilateral rebate in Islamic financial transactions. It also aims to evaluate the contemporary application of bilateral rebate in Islamic banking operation as an alternative to the conventional mechanism in handling the events of early settlement of debt, early termination of debt facility and early withdrawal of term deposit. Design/methodology/approach The study used deductive and inductive methods to analyze the juristic literature of all the major schools of law on the legality of both bilateral and unilateral rebate in a financial transaction. Findings The study found bilateral rebate (ibra’ mutabadal), instead of unilateral rebate, to be the best and fairest Islamic mechanism to overcome injustice in several events that may impact the bank’s liquidity such as that of early settlement of debt facility and early withdrawal of term deposit in the sense that the interest (maslahah) of both transacting parties is equally secured. Research limitations/implications This study has its limitation, as it only covers the applicability of bilateral rebate in Islamic banking operation. It does not include the applicability of bilateral rebate in other segments of Islamic finance such as Islamic capital markets and Islamic insurance (Takaful business). Practical implications This paper has practical implication for Islamic banking industry particularly with regard to its liquidity management in the event of early settlement of a debt facility, early termination of an Islamic facility and early withdrawal of Islamic term deposit. It may also assume policy implication in the event that the regulator adopts the legality of bilateral rebate in its Islamic banking policy and guidelines. Originality/value This paper offers an Islamic alternative to the conventional mechanism in handling the event of early settlement of a debt facility, early termination of an Islamic facility and early withdrawal of Islamic term deposit. Under conventional banking, there are certain fees and charges imposed on customers in the above events like early settlement charge and early withdrawal charge. Unlike its conventional counterpart, Islamic banks cannot opt for the conventional method that seems unjust to the customers as the charge is imposed without Sharīʿah basis. In this case, bilateral rebate serves as a fair mechanism to manage the bank’s liquidity in the aforementioned events.

scholarly journals Liquidity Trap: the Brazilian version

2019 ◽  
Vol 4 (2) ◽  
pp. 278
Author(s):  
Fernando Ferrari Filho ◽  
Marcelo Milan
Keyword(s):  
Interest Rates ◽  
Aggregate Demand ◽  
Fiscal Policies ◽  
Treasury Bills ◽  
Liquidity Trap ◽  
Limited Impact ◽  
Income Transfers ◽  
Brazilian Version ◽  
Distribution Of Income ◽  
Very High

<p>The goal of this paper is to provide an interpretation about the sky-high real interest rates in Brazil. We use Keynes’ argument regarding liquidity trap to identify the forces trapping interest rates, but in Brazil they are trapped at very high levels instead of at the zero-lower bound discussed in Keynes’s <em>General Theory</em>. Rentiers, in Brazil, influence the Brazilian Central Bank to obtain very liquid assets in the form of Financial Treasury Bills (LFTs) while keeping high interest earnings. In this case expansionary fiscal policies will have a limited impact on output, given the resulting high debt levels and debt service, but will imply significant income transfers to the rentiers. This means that aggregate demand and income will be less sensitive to fiscal stimuli, but the distribution of income will be biased toward the rentiers. </p><p> </p>

scholarly journals Ten Years On: What Have We Learned? What Have We Done? What Must We Do?

2019 ◽  
Author(s):  
Robert C. Hockett
Keyword(s):  
Wealth Distribution ◽  
Central Banking ◽  
Secondary Market ◽  
System Structure ◽  
Labor Rights ◽  
Secondary Markets ◽  
Market Makers ◽  
Capital Ownership ◽  
Home Mortgage ◽  
National Investment

Ten years after the financial dramas of Autumn 2008, I take stock of what we have learned, what we have done, and what we have yet to do if we would avoid a repeat performance. The primary lessons I draw are that income and wealth distribution, the endogeneity of credit-money, and finance system structure all matter profoundly not only where justice, but also where systemic stability is concerned. The longer-term tasks still before us include a much broader and financially engineered diffusion of capital ownership over our population, citizen central banking, a permanent national investment authority, continuous public open labor market operations, debt-free or low-debt education and health insurance, and an updated form of segregating capital-raising primary from asset-trading secondary markets in the financial sector. Shorter-term tasks include debt-forgiveness, a restoration of labor rights and countercyclical progressive taxation, and restored citizen-ownership of our secondary market makers in home mortgage and higher education debt. These measures will restore the nation to its erstwhile status as a productive middle class ‘yeoman republic,’ and in so doing will restore both justice and efficiency to our social and economic arrangements.

Amid many unknowns, EM assets will remain strained

2017 ◽  
Keyword(s):  
Emerging Market ◽  
Treasury Bonds ◽  
Government Bonds ◽  
Content Type ◽  
Bond Yield ◽  
The Us ◽  
Equity Funds ◽  
Treasury Bond ◽  
Mexican Peso ◽  
Bureau Of Labor Statistics

Subject Emerging markets under strain from dollar rally. Significance The US Bureau of Labor Statistics reported on January 6 that average hourly earnings grew at the fastest pace since 2009 in December -- a further fillip to the ‘trumpflation trade’ that has gripped financial markets since the victory of Donald Trump in the US presidential election. Expectations of further Fed rate increases have driven the dollar index and the ten-year Treasury bond yield higher, straining emerging market (EM) assets. EM mutual equity funds have suffered a wave of uninterrupted outflows since Trump’s victory. The Mexican peso and the Turkish lira have plumbed record lows against the dollar. Impacts Many EMs are preparing to sell dollar-denominated debt in anticipation of higher borrowing costs, including Argentina, Brazil and Nigeria. Speculative bets against US Treasury bonds have risen to a record high amid expectations of higher US inflation and further rate hikes. The stock of negative-yielding government bonds stands at 10.8 trillion dollars, fuelling demand for higher-yielding securities. In April, the US Treasury’s next Foreign Exchange Report could label China a currency manipulator though the criteria would need to change.

Volatility of real return and impact of monetary policy rates on yield of the 182 days treasury bills in India

2019 ◽  
Vol 118 (4) ◽  
pp. 142-145
Author(s):  
Vijayalakshmi Pa
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Central Government ◽  
Secondary Market ◽  
Treasury Bills ◽  
The Public ◽  
The Government ◽  
The Impact ◽  
Financial Securities

Central Government issues securities in financial markets to meet out its financial requirements for fulfilling its objectives towards overall economic and welfare development of the nation. Both money and capital markets help to float short term as well as long term securities before the public to tap their savings. Financial institutions, Banks, primary dealers and individuals are allowed to deal with financial securities. 182 Days Treasury Bill is also one of the instrument which cater the needs of deficit of the government.  This paper deals with   182 days treasury bills for  analysing the real return and trading of  182 days treasury bills in the secondary market and the impact of  monetary policy rates on average yield  on 182 days treasury bills and concluded that monetary policy rates have impact on 182 days treasury bills in India.

Monetary Policy Operations of Central Banks in the E7 Economies

2020 ◽  
pp. 65-91
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Crucial Role ◽  
Policy Instruments ◽  
Active Role ◽  
Central Banks ◽  
Central Banking ◽  
Fiscal Policies ◽  
Monetary Policies ◽  
Sustainable Economic Growth

Both monetary and fiscal policies have a crucial role in the financial markets of the countries. In this framework, policies can be used for mainly two different purposes, which are contractionary and expansionary policies. Hence, it can be said that monetary policies play a key role especially for the emerging economies. The main reason is that these are the economies that aim to be a developed economy. In order to reach this objective, they aim to make investment to obtain sustainable economic growth. Similar to this aspect, this chapter aims to identify different monetary policy operations of the central banks. Thus, various monetary policy instruments are explained. After this issue, necessary information is given related to the central banking operations of E7 economies. As a result, it is defined that central banks of these countries play an active role especially during the recession period.

Short-term Sharīʿah-compliant Islamic liquidity management instruments to sustain Islamic banking

2020 ◽  
Vol 11 (2) ◽  
pp. 428-439
Author(s):  
Aishath Muneeza
Keyword(s):  
Sustainable Development ◽  
Design Methodology ◽  
Central Banks ◽  
Islamic Banking ◽  
Exploratory Research ◽  
Short Term ◽  
Liquidity Management ◽  
Treasury Bills ◽  
Content Type ◽  
Shed Light

Purpose The purpose of this paper is to describe the structure of the Islamic treasury bills issued by the Central Bank of Maldives, Maldives Monetary Authority (MMA) for the benefit of those jurisdictions that aspire to introduce short term Islamic liquidity management instruments. Design/methodology/approach This is exploratory research where the experience of the author in structuring the Islamic liquidity management instruments discussed in the paper. Findings It is evident from the discussions of this paper that innovation is the key to structure Sharīʿah-compliant short term liquidity management instruments. The example of Maldives has proved that there is a need to amend the laws of the country to facilitate Central banks to deal with Sharīʿah-compliant instruments. Originality/value It is hoped that this research has shed light on the importance of having the proper Sharīʿah-compliant liquidity management instruments for sustainable development of Islamic banking and how jurisdictions have practically made this possible. The Islamic money market has developed gradually and there is a need to innovate novel and competitive instruments and further research is required to be conducted on this.

Sign in / Sign up

Export Citation Format

Share Document