Floating profit rates in the usury-free banking: A framework for strengthening the monetary transmission mechanism

Making the banks rate adjustable or variable is one of the ways that is used in modern central banking for supporting the monetary transmission mechanism. In this context, when the central bank implements the monetary policy, making use of the open market operation, the rates of banking deposit and loans will change automatically and accordingly and hence the real sector of the economy would be affected. Having reviewed the subject of money market in the conventional financial system, this paper tries to evaluate the possibility of making Islamic money market. The results which are based on a analytical-descriptive approach show that: firstly, the Islamic money market is theoretically plausible. In fact, it is quite possible to make Islamic money market by making use of Islamic short-term instruments. In addition to theory, the Islamic money market is made in some Islamic countries like Malaysia and Iran. Secondly, in the Islamic Fiqh, different kinds of Islamic contracts with fixed and predetermined return rate are available (like Murabaha). It is possible to use these contracts in the Islamic money market.