Advertisement

Rate of Profit as a Monetary Policy Tool for Financial Stability

  • Trisiladi Supriyanto
Chapter

Abstract

This chapter provides a fundamental research to find a replacement of the Central Bank of Indonesia (BI) policy rate as a reference rate for the Islamic financial transactions. The replacement of BI policy rate as a reference rate for Islamic banking is important, given that the BI policy rate (noncontractual) has been replaced by the BI 7-day repo rate, which is a contractual rate. The reference rate is determined by the supply and demand of borrowing transaction using the instrument of SBI (Bank Indonesia Certificate) in conventional money markets that are not based on the rate of profit derived from financial transactions in the real sector, which is in accordance with the principles of Islamic economics. The use of Shari’ah Reference Rate as a substitute for BI policy rate as a monetary operation tool is very important in determining the rate of profit for Islamic financial transactions. The reference rate affects the short- and long-term rate of return for Islamic banking transactions, which will determine the price of financing rate, the price of deposit rate, the price of bonds, and the net worth of asset liability management of Islamic banks. The study shows that the use of Shari’ah Reference Rate is expected to create stability in the Islamic financial market and to achieve the equitable distribution of income and wealth in accordance with Maqasid al-Shari’ah.

Keywords

BI rate Reference rate Rate of return Financial stability 

JEL Classification

G20 G21 G28 

References

  1. al-Sadr, M. B. (1961). Iqtisaduna. Beirut: Dar al-Fikr.Google Scholar
  2. Bank Indonesia. (2008). Bank Indonesia regulation no.10/36/PBI/2008 on sharia monetary operation. Bank Indonesia: Jakarta.Google Scholar
  3. Bloomberg Company. www.bloomberg.com. Accessed on 4 June 2010.
  4. Choudhury, M. A. (1997). Generalized theory of Islamic development financing. London: The Edwin Mellen Press.Google Scholar
  5. El-Gamal, M. A. (2006). Islamic finance: Law, economics and practice. New York: Cambridge University Press.CrossRefGoogle Scholar
  6. Ismail, A. G. (2010). Money, Islamic banks and the real economy. Singapore: Cengage Learning.Google Scholar
  7. Khan, M. S., & Mirakhor, A. (1989). The financial system and monetary policy in an Islamic economy. Journal of Research in Islamic Economics,. King Abdul Aziz University, 1(1), 39–57.Google Scholar
  8. Khan, M. F. (1995). Essays in Islamic economy: Time value of money and discounting in Islamic perspective. Leicester, UK: The Islamic Foundation.Google Scholar
  9. Omar, M. A., Abduh, M., & Sukmana, R. (2013). Fundamentals of Islamic money and capital markets. Wiley.Google Scholar
  10. Rosly, S. A. (2005). Critical issues on Islamic banking and financial markets: Islamic economics, banking and finance, investments, Takaful and financial planning. Milton Keynes: AuthorHouse.Google Scholar
  11. Saeed, A. (1996). Islamic banking and interest: A study of the prohibition of Riba and its contemporary interpretation. Leiden: E.J. Brill.Google Scholar
  12. Sitorus, T. (2015). Indonesia’s bond market: Theory and practices. Jakarta: Rajawali Press.Google Scholar
  13. Sraffa, P. (1960). Production of commodities by means of commodities: Preclude to a critique of economic theory. Bombay: Vora &, Publishers PVT. LTD.Google Scholar
  14. Thornton, H. (1965). In F. R. von Hayek (Ed.), An inquiry into the nature and effects of the paper credit of Great Britain. New York: Rinehart.Google Scholar
  15. Wicksell. (1934). Lectures in political economy, (trans.), E. Classen. London: Routledge.Google Scholar

Copyright information

© Islamic Research and Training Institute 2019

Authors and Affiliations

  • Trisiladi Supriyanto
    • 1
  1. 1.Ibnu Khaldun University BogorBogorIndonesia

Personalised recommendations