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11 – 20 of over 44000Cryptocurrency arose, and grew in popularity, following the financial crisis of 2008 built upon a promise of decentralizing money and payments. An examination of the history of…
Abstract
Cryptocurrency arose, and grew in popularity, following the financial crisis of 2008 built upon a promise of decentralizing money and payments. An examination of the history of money and banking in the United States demonstrates that stable money benefits from strict controls and commitments by a centralized government through chartering restrictions and a broad safety net, rather than decentralization. In addition, financial crises happen when the government allows money creation to occur outside of official channels. The US central bank is then forced into a policy of supporting a range of money-like assets in order to maintain a grip on monetary policy and some semblance of financial stability.
In addition, this chapter argues that cryptocurrency as a form of shadow money shares many of the problematic attributes of both the privately issued bank notes that created instability during the “free banking” era and the “shadow banking” activities that contributed to the 2008 crisis. In this sense, rather than being a novel and disruptive idea, cryptocurrency replicates many of the systemically destabilizing aspects of privately issued money and money-like instruments.
This chapter proposes that, rather than allowing a new, digital “free banking” era to emerge, there are better alternatives. Specifically, it argues that the Federal Reserve (Fed) should use its tools to improve public payment systems, enact robust utility-like regulations for private digital currencies and limit the likelihood of bubbles using prudential measures.
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The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven, meaning that…
Abstract
Purpose
The development of blockchain and cryptocurrency may alleviate the economic strain associated with recession. Economic recessions tend to be aggregate-demand driven, meaning that they are caused by fluctuations in the supply of or demand for money. Holding monetary policy as solution assumes that stability must arise from outside of the economic system. Under a policy regime that allows innovations in blockchain to develop, blockchain technology may promote a money supply that is responsive to changes in demand to hold money. The purpose of this paper is to suggest that cryptocurrencies present an opportunity to profitably implement rules that promote macroeconomic stability. In particular, cryptocurrency that is asset-backed may provide a means for cheaply attaining liquidity during a crisis.
Design/methodology/approach
The role of cryptocurrency in promoting macroeconomic equilibrium is approached through the lens of monetary theory. Moves away from macroeconomic equilibrium necessitate either a change in the average price of money or a change in the quantity of money, or a change in portfolio demand for money. Cryptocurrency promotes an increase, however this requires the alignment of policy regulating the use of cryptocurrency, reduction in taxes placed on the use of cryptocurrency and cryptocurrency protocol.
Findings
Cryptocurrency is unlikely to become legal tender, but it may alleviate macroeconomic fluctuations as a near money that provides liquidity and whose supply is sensitive to changes in demand to hold money and money-like substitutes. This role might be inhibited if policy stifles the development of cryptocurrencies and blockchain technology.
Research limitations/implications
New financial innovations like cryptocurrencies can be analyzed applying the equation of exchange in light of the mechanics of money creation under conditions of disequilibrium. Monetary disequilibrium may be promoted by policy that causes bottlenecks in financial markets.
Originality/value
Theory of monetary disequilibrium has broad implications for the development and regulation of financial markets. This theory has not been applied to the development of cryptocurrency markets.
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Ahamed Kameel Mydin Meera and Moussa Larbani
To reason whether the interest‐based fiat monetary system is compatible with the objectives of the Islamic law or the Shariah.
Abstract
Purpose
To reason whether the interest‐based fiat monetary system is compatible with the objectives of the Islamic law or the Shariah.
Design/methodology/approach
This is a theoretical paper that uses the quantity theory of money and the objectives or maqasid al‐Shariah as expounded by scholars as basis for logical deductions therefrom.
Findings
The socio‐economic implications of fiat monetary system imply that the maqasid al‐Shariah cannot be attained. Indeed, the system is likely to cause a move away from the maqasid.
Research limitations/implications
The paper is based primarily on theoretical deductions. Further empirical investigation would shed further light.
Practical implications
Practical implications are numerous. The definition of what is money is then crucial to address the socio‐economic implications caused by the fiat monetary system. For Islamic economics, this would imply that the process of Islamization of knowledge/disciplines is futile without addressing this issue first. Accordingly, the establishment of Islamic economics, banking and finance warrants a serious look into the current definition of money and monetary systems.
Originality/value
It calls for a definition of Shariah‐compatible money. This is beneficial to the researchers, proponents and practitioners of Islamic economics, banking and finance.
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Syammon Jaffar, Adam Abdullah and Ahamed Kameel Mydin Meera
This paper aims to discuss the opinions of current Shariah scholars on the concept of debt money in the present-day fiat money system.
Abstract
Purpose
This paper aims to discuss the opinions of current Shariah scholars on the concept of debt money in the present-day fiat money system.
Design/methodology/approach
Research design of this paper is a quantitative investigation of Shariah experts by distributing a questionnaire to them. As majority of Shariah scholars are also Shariah advisory of the current banking system, it is important to find out their level of knowledge on the issue of debt money created by the commercial banking system through the fractional-reserve banking (FRB) system.
Findings
Based on this investigation, most Shariah scholars are unaware of and confused about the mechanics underpinning the creation of money, especially with respect to FRB as it is practiced by the conventional and Islamic banking systems.
Originality/value
Based on this research, it is recommended that these scholars should improve their understanding of the operation of the fiat money system and its consequences. It is recommended that, in future, Shariah scholars should think “outside of the box” by creating Islamic financial instruments that do not resemble those of the conventional system.
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This study aims to evaluate the role of the prevailing currency systems in achieving (or departing from) the socio-economic objectives of a progressive and just society; i.e…
Abstract
Purpose
This study aims to evaluate the role of the prevailing currency systems in achieving (or departing from) the socio-economic objectives of a progressive and just society; i.e. featuring stability and equitable distribution of wealth.
Design/methodology/approach
After documenting historical developments in currency systems, the study reviews the Islamic perspective on the matter. Features of an ideal currency system are listed and then a critical evaluation of existing currency systems – fiat, banking and cryptocurrency – is undertaken.
Findings
It is found that existing currency systems – fiat, banking and cryptocurrency – are not compatible with the socio-economic objectives of a forward-looking, progressive society, which upholds transparency and justice as its core values. The study documents that Sharīʿah norms have no preference or dislike for any of the existing currency systems. Any prudent currency system compatible with the objectives of the Islamic financial system (i.e. stability and equitable distribution of wealth) is acceptable. A single international reserve currency (with country-specific legal tendering) is subject to the risk of destabilisation across global markets.
Practical implications
This paper recommends autonomy of central banking, the spending of seigniorage for the welfare of community members, development of asset-backed currencies (following ṣukūk structures), as well as multiple international reserve currencies and joining of hands by professionals and Sharīʿah scholars to design a currency system compatible with the Islamic financial system. This paper’s recommendation is against the adoption of cryptocurrency that lacks the backing of real assets.
Originality/value
The study contributes to the literature by evaluating the compatibility of existing currency systems in the achievement of socio-economic objectives of a welfare state which seeks to uphold justice and equitable resource distribution as core values in the financial system.
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The aim of this paper is to examine the proposition that the monetary reform movement has correctly identified the central importance of money‐issue whilst, simultaneously, not…
Abstract
Purpose
The aim of this paper is to examine the proposition that the monetary reform movement has correctly identified the central importance of money‐issue whilst, simultaneously, not appreciated the sophistication of previous monetary theorists.
Design/methodology/approach
The Classical, Keynesian and Marxian monetary traditions are explored within the context of the views of the monetary reformers, as espoused by Stephen Zarlenga of the American Monetary Institute.
Findings
The monetary reform movement has presented a far too simplistic view of previous monetary theorists yet identified an underdeveloped arena for research.
Practical implications
The development of understanding towards a state theory of money.
Originality/value
The paper contributes to theoretical knowledge regarding the political economy of money creation.
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The purpose of this paper is to introduce blockchains and distributed ledgers and describe their potential applications to money and banking.
Abstract
Purpose
The purpose of this paper is to introduce blockchains and distributed ledgers and describe their potential applications to money and banking.
Design/Methodology/Approach
The analysis compares public and private ledgers and outlines the suitability of various types of ledgers for different purposes. Furthermore, a few historical prototypes of blockchains and distributed ledgers are presented, and results of their hard forking are illustrated. Next, some potential applications of distributed ledgers to trading, clearing and settlement, payments, trade finance, etc. are outlined.
Findings
Monetary circuits are argued to be natural applications for blockchains. Finally, the role of digital currencies in modern society is articulated and various forms of digital cash, such as central bank issued electronic cash, bank money, Bitcoin and P2P money, are compared and contrasted.
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The purpose of this paper is to examine modern monetary policy as practiced and promoted by the officials of Central Banks, with the Federal Reserve Bank of the USA and the Bank…
Abstract
Purpose
The purpose of this paper is to examine modern monetary policy as practiced and promoted by the officials of Central Banks, with the Federal Reserve Bank of the USA and the Bank of Japan in leading roles.
Design/methodology/approach
Modern monetary policy is assessed for its rhetoric and its philosophies steeped in Keynesian traditions. The fallacies of relying on patently incorrect economic theory with specific critique on the assumption that saving is equal to investment (S=I) is exposed in the policy failures of themes such as quantitative easing, approaching the zero bound, wealth effects, the liquidity trap, forbearance lending and an unwavering belief in the power to inflate. An alternative credit theory is presented and discussed to explain the accumulation of monetary interventions in the modern banking environment. The credit theory is further expanded to evaluate an economy in distress as a result of an accumulation of monetary stimulations against a background of the philosophies of the Austrian school of economics.
Findings
Three decisive monetary policy outcomes are identified and substantiated in the Austrian philosophy of laissez faire; the probable outcome of modern monetary policies in deflationary stasis; and the destructive outcome of extreme monetary and fiscal interventions resulting in a hyperinflationary depression and destruction of the money unit.
Originality/value
The conceptual framework and content of the paper are mostly original and will contribute to the study of political and monetary economics.
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