The Design of Instruments for Government Finance in an Islamic Economy

IMF Working Papers, April 1, 1998

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The Design of Instruments for Government Finance in an Islamic Economy

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Bibliographic details

• Published: April 1, 1998
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451847482.001

Summary

• The paper presents an approach for designing an instrument of government finance (and monetary management) in an Islamic economy where conventional transactions based on an ex-ante promise of a risk-free rate of return are forbidden.
• Resources to finance government infrastructural and development projects can be mobilized by issuing a national participation paper (NPP).
• The national participation paper can also serve as an instrument of monetary management.
• The paper discusses various conceptional issues underpinning the introduction of such an instrument and methods of calculating a corresponding rate of return.
• In principle, this approach has been accepted by the Islamic Republic of Iran.

Instrument design and role

• Instrument proposed: national participation paper (NPP).
• Primary functions:
  • Mobilize resources to finance government infrastructural and development projects.
  • Serve as an instrument of monetary management in an Islamic economy.
• Conceptual constraint addressed: prohibition of conventional transactions based on an ex-ante promise of a risk-free rate of return.

Methods for calculating a rate of return

• The paper discusses methods of calculating a corresponding rate of return for the NPP (details of methods are discussed in the paper).

Context, subjects, and keywords

• Subject areas listed: Asset prices, Banking, Financial institutions, Financial markets, Government securities, National accounts, Prices, Return on investment, Stock markets, Stocks.
• Keywords listed: Asset prices, central bank, Government securities, indirect monetary instruments, Islamic banking, market, market clearing price, market rate of return, Middle East, NPP market, price-earnings ratio, rate of return, return on equity, Return on investment, risk premium, Stock markets, Stocks, Treasury bills, WP.

Content in this bundle

• The Design of Instruments for Government Finance in an Islamic Economy - WP/98/54
  • The Design of Instruments for Government Finance in an Islamic Economy - WP/98/54 (Markdown version)
  • The Design of Instruments for Government Finance in an Islamic Economy - WP/98/54 (PDF)