Proposed Scenario for the Monetary Policy Base with Islamic Visions in Iraq

Abstract

This research aims to address the problem that Iraq's monetary policy faces, which is the significant challenge of developing effective and Sharia-compliant monetary policy tools. Relying solely on a fixed interest rate without considering the real sector and the real economy cannot resolve issues such as rising inflation, savings, income, investment, and economic growth. The importance of this research lies in its attempt to demonstrate that the Central Bank of Iraq can effectively implement its monetary policy within an Islamic economic system based on the principles of justice, stability, and efficiency, allowing it to achieve its objectives through the proposed quantitative and qualitative tools.The objectives of the research include exploring the need for new monetary tools in accordance with Islamic Sharia that align with contemporary changes in Iraq's monetary system, particularly amidst current economic crises. It does so by examining monetary, financial, and real indicators and exploring the possibility of finding alternative Islamic tools to replace traditional monetary instruments. The study also hypothesizes that the expected participatory profit rate, as an alternative to the interest rate, is crucial for structuring the mechanisms and procedures of monetary policy to achieve its ultimate goals. This is based on the intellectual, scientific, and logical foundations of the Taylor rule for monetary policy, enhanced with an Islamic perspective. To achieve the research objectives and validate its hypotheses, the study employed a descriptive, analytical, and quantitative approach. A scientifically accepted proposal was formulated for an Islamic adaptation of the monetary policy rule based on the intellectual, scientific, and logical foundations of the Taylor rule for monetary policy. This adaptation explores the feasibility of transitioning from a conventional monetary policy to an Islamic monetary policy within the Iraqi economy. Various indicators were used to investigate the relationships between the variables during the study period, utilizing co-integration relationships and the ARDL model. Quarterly data for the study’s model variables were collected for the period Q1 2010 to Q4 2022, using the software (Eviews 13). Accordingly, the study concluded that the hypothesis is valid, demonstrating that the expected participatory profit rate, as an alternative to the interest rate, is crucial for structuring the mechanisms and procedures of monetary policy to achieve its ultimate goals. This conclusion is grounded in the intellectual, scientific, and logical principles of the Taylor rule for monetary policy, enhanced by the Islamic dimension.