An Analysis of Monetary Interest Rate Effects in Capitalist Economics Crisis: Islamic Approach

Economic crises of the capitalistic economics are one of the current phenomenon in which huge economic costs has been imposed on countries. The solutions provided within the capitalist system to prevent repeated economic crises and volatilities in financial markets, usually are temporary and could not solve the problem completely. This paper using an Islamic approach and a theoretical analysis has studied the role of monetary interest rate in formation economic crises within capitalist economics. The results indicate that monetary interest rate has a crucial role in limiting employment and production levels and causes inflation and uncertainty in economy. It also prevents the optimum resource allocation and sustainable equilibrium. So, the Islamic banking based, on real contracts of economy can eliminate the restrictions mentioned and induce the establishment of financial discipline. Therefore, from this aspect, The Islamic paradigm is more efficient than capitalist system.