IMPLEMENTING MONETARY POLICY WITH APPLICATION OF SUKUK: CHALLENGES AND POLICY DIRECTIONS

Abstract

Each market economy uses monetary policy to attain certain macroeconomic goals of price stability, higher growth and employment. A market economy having an interest-based conventional banking system applies mainly interest-based tools to attain the objectives of monetary policy. In contrast, a market economy with interest-based and interest-free banking needs to apply Shariah-compliant monetary instruments vis-à-vis conventional tools for attaining the goals of the monetary policy. As there is a paucity of quality research on Sukuk-based monetary policy, the current paper will explore Shariah compliant monetary instrument ‘Sukuk’ for use as a monetary tool in dual banking, examining experiences of Shariah-based monetary operations in different countries. The paper will also examine the challenges of monetary policy operating in the dual banking system of Bangladesh with policy options for addressing the challenges.   Keywords: Dual banking system, monetary policy, Shariah based monetary operations, Sukuk, Qard-al-Hasan.   Cite as: Md. Aminul, I., Md. Golzare, N., Rafiun, N., & Md. Sharif, H. (2023). Implementing monetary policy with application of Sukuk: challenges and policy directions. Journal of Nusantara Studies, 8(2), 27-43. http://dx.doi.org/10.24200/jonus.vol8iss2pp27-43