RECONSTRUCTION OF ISLAMIC MONETARY POLICY MODELS UNDER THE FIAT MONEY SYSTEM: A CRITICAL REVIEW OF CONVENTIONAL INSTRUMENTS AND SHARIA INNOVATIONS
DOI:
https://doi.org/10.54783/4g9xhp35Keywords:
Fiat Money, Islamic Monetary Policy, Sharia-Compliant Instruments, Monetary Stability, Monetary Reform.”Abstract
The dominance of fiat money has generated structural vulnerabilities in many developing economies, particularly regarding exchange-rate volatility, inflationary pressures, and tendencies toward interest-driven financial expansion. The absence of real-asset backing enables unrestricted money creation, which—when used to fund fiscal deficits—exposes economies to misallocation, speculative bubbles, and systemic monetary distortions. In this context, Islamic monetary policy emerges as a normative and practical alternative that anchors financial stability to real economic activities and moral-ethical constraints.
This research adopts an empirical qualitative design to explore the conceptual foundations and operational dynamics of Islamic monetary frameworks within a fiat-money environment. Data are drawn from policy documents, regulatory reports, empirical studies, and authoritative Islamic economic literature. Through thematic analysis, the study highlights that Islamic monetary systems strengthen economic circulation, discourage idle money holdings, and promote asset-based monetary expansion. The results emphasize that successful implementation requires comprehensive regulatory architecture, the development of Sharia-compliant monetary instruments, effective oversight of Islamic banking, and the systematic integration of Islamic finance into national financial ecosystems. The study contributes to contemporary debates on monetary reform by demonstrating how Islamic monetary policy can enhance macroeconomic resilience, distributive justice, and long-term welfare.
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