Question

When we use money and its role in the Islamic context, does not vary from other economic
structures, we should find monetary policy as an essential instrument available to the
government to achieve macroeconomic objectives.
Analyse the monetary policy operational framework for Islamic banks; and explain Islamic
monetary instruments.

Answer 1

Usually Islamic monetary policies are different from the normal banks as the role of an Islamic central bank in conducting monetary policy is restricted to use interest-free Islamic monetary instruments and commercial banks are obliged to implement non-usury banking operations.

Hence said above there are no specific monetary instrument in regards to the Islamic bank although they can earn it through the returns on investment, loans given and incomes from other sources. While making the monetary policy framework for Islamic banks. I will consider following points and will design framework accordingly.

1. Repo/reverse repo rate
2. Interest received
3. Investment made
4. other source of income
5. Deposits made

Collating all this together I will have the framework designed which would comprise of following

1. Overview of monetary instruments

As said there is no such monetary instrument of Islamic bank and it depends bank to bank how they raise money and generate income hence while preparing monetary framework I will first study monetary instrument which affect macroeconomics

2. Planning

After overview is done I will study look for all monetary instrument available for Islamic bank which could be

• Investment opportunity
• Forex opportunity
• Deposit schemes

Accordingly will have plan and go through the best options available

3. Execution and approved

Once planning is done will have all this executed after taking forma approvals from bank heads

4. Report

Weekly report of this instrument would be submitted to the bank heads