The Art of RF (Riba-Free) Islamic Banking and Finance: Tools and Techniques for Community-Based Banking, 2nd Edition

CHAPTER 5 Money and Its Creation: The U.S. Federal Reserve System (Central Banks) and Interest Rates

This chapter is about money and, in particular, its use in helping the economic growth and prosperity of the community through providing a medium of exchange and credit. The question is how to fairly reward those who own the money, in order to entice them to invest within the community. Chapter 2 concluded that the RF Judeo-Christian-Islamic law (the Shari'aa law) and lifestyle prohibit the charging of a rental rate or a fee for the use of money (i.e., riba/ribit/usury, which is now called interest) and encourages investing in the community to achieve economic prosperity and fair return on that investment. It also concluded that if money is given for helping the poor and the needy, there must not be any increase when it is paid back. In Chapter 3, we discussed how the Judeo-Christian-Islamic Shari'aa law requires that when pricing a service or an item, we should use the RF disciplines of Commodity Indexation (using precious metals or food staples as references to calibrate real value and price) and of Marking to Market (gauging the value of properties and services according to actual leasing values on the local open market).

Any discussion of the riba-free (RF) banking and finance system, as compared to the riba-based system, should be based on a clear understanding of money and how the monetary policies of the leading reserve currency of the world—the U.S. dollar—are designed ...