"Institutional Aspects of Economic, Monetary and Financial Reforms"

Volume Two

Islamic Economic Perspectives and Theoretical Models

SELECTED PAPERS PRESENTED TO THE 10th INTERNATIONAL CONFERENCE ON ISLAMIC ECONOMICS AND FINANCE, to be published by IRTI, IDB, Jeddah

EMAIL from Syed Salman Ali regarding publications status of this book.

Your article “On the Nature of Modern Money” was part of the Volume that I edited. The title and Table of Contents are attached. An introductory chapter introducing and linking all the chapters to the title of theme of this volume was also written and sent to Qatar Foundation for publication.

However, during the publication verification process it was discovered that by irresponsible initiative of a person, a large number of papers from 10^th Conference were published or were in process of publication without due permission of the conference organizers by Edward Elgar and some other publishers. This created a dispute situation, which is not yet resolved. The project was temporarily stopped.

Now, Dr. Tariqullah has again taken an initiative to get them published anyway under the conference organizer’s name. I am copying it to Dr. Tariqullah as he is in better position to state the current status of the books volumes.

Kind regards,

On behalf of the 10^thInternational Conference on Islamic Economics and Finance Organizing Committee and Editorial Committee, I am pleased to inform you that your paper titled “On the Nature of Modern Money” has been short-listed for a forthcoming volume of an edited book. The tentative title for this volume is Islamic Economic Perspectives and Theoretical Models.

The volumes will be edited by a joint editorial board consisting of members from Islamic Research Training Institute (IRTI) of the Islamic Development Bank (IDB) and Qatar Faculty of Islamic Studies (QFIS), Hamad Bin Khalifa University (HBKU). All submissions will be reviewed by the members of the editorial board.

You are requested to submit your updated paper by 5 October 2016. Please send the paper tossyedali@isdb.orgwith cc to IMohammed@isdb.organd wtariq@qfis.edu.qa . In your revised submission, please adhere to the following guidelines:

· Submissions must be in Word document format

· Submissions must adopt the Harvard referencing style.

· Submissions must include the names of all co-authors, corresponding author e-mail addresses and current affiliations, and a short 50 word biography of the authors.

· Submissions must also include acknowledgements/disclosure of whether the paper has been already published in any other journal or book.

· If any graphics/picture files are embedded in the main submission, please submit these graphic files separately in high-resolution.

(A detailed guideline of the forma from the publisher is also attached).

We are in the process of discussions with an academic publisher, namely the Hamad Bin Khalifa University Press, to publish the volumes by December 2016.

If you have any comments, questions or concerns, please do not hesitate to contact me.

Sincerely,

Dr. Salman Syed Ali

Islamic Research and Training Institute

Islamic Development Bank

It is my pleasure to acknowledge with thanks the receipt of your article “On the Nature of Modern Money” submitted for possible publication in Islamic Studies.

Your manuscript, IMEFM-11-2015-0130, entitled "On the Nature of Modern Money" has been unsubmitted to the International Journal of Islamic and Middle Eastern Finance and Management. The submission is over the 9,000 word maximum for the IMEFM Journal requirements.

05-Nov-2015

Dear Dr. Zaman:

Your manuscript entitled "On the Nature of Modern Money" has been successfully submitted online and is presently being given full consideration for publication in the International Journal of Islamic and Middle Eastern Finance and Management.

Your manuscript ID is IMEFM-11-2015-0130.

Draft 4 submission to: 10th International Conference on Islamic Economics & Finance (10th ICIEF), Institutional Aspects of Economic, Monetary and Financial Reforms, 23-25 March 2015, Doha, Qatar

See also, related paper, Islamic Version of The Iceland Plan for Monetary Reform

For a sequence of readings -- see Money References (link on left panel)

For relevant readings & references, see: Debt, Money, Seignorage (link on left panel)

Download from SSRN: On the Nature of Modern Money

1. Conclusions.

The nature of the subject is such that this paper is lengthy and complex. To conclude, we attempt to summarize and highlight the central issues discussed at length in the paper.

First, we note that the system of fractional reserve banking allows the private banking system to create money out of thin air. The current system is such that the vast majority of money is created by the private sector, while only a little – 10% or less – is created by the government. Furthermore, this money creation is intimately tied to debt –money is created when banks make loans at interest. This private creation of money is extremely harmful to society in many ways, as discussed below.

Debt based creation of money leads to prevalence of interest and inflation, both of which are socially harmful. Mian and Sufi (2014) have explained that accumulation of debt leads to a crisis prone system. Private money creation is done to excess at times when restraint is needed, and shrinks at times when money is needed by the economic. The interest based debt contract leads to great injustice, which can be removed by shifting to equity based contracts favoured by Islamic law. Because debts guarantee returns to the wealthy lenders but not to the poor borrowers, concentration of wealth and inequality results from this system. A historical analysis is carried out to show that these are not theoretical concerns. Rather, banks have suffered from massive crises multiple times, leading to misery for the millions, but gains for a minority elite class. Replacement of western banks by Islamic banks currently in vogue would do nothing to address these problems, as the money creation would remain in private hands.

As a certain amount of money is vital to the functioning of an economy, we cannot simply ban private creation of money. That would lead to substantial reduction of money supply and hence a recession or a depression. The Chicago plan aims to remedy this problem by having the government print all of the money that is currently being created privately by banks. Moving to a 100% reserve banking system would restrict the power of money creation solely to the government. This has the potential to eliminate all of the problems which arise due to private creation of money, as discussed in the previous paragraph. Opponents of the Chicago Plan have raised several objections which are discussed and answered in the paper.

Moving to government creation of money allows for radical reforms in the structure of financial institutions of a society. The most important change is that in a system of privately created money, money is created for projects which maximize personal profits, regardless of how much social and environmental damage is caused by these projects. However, with government in control, money would be readily available for projects which maximize social returns. The paper goes on to suggest that Islamic financial institutions would be involved in providing real services, as opposed to purely financial ones. This would lead to a differentiated and diverse structure of institutions adapted to Islamic societies. We provide an outline of what such structures might look like, and how they would be superior to current institutions which concentrate wealth and are crisis prone.