CHAPTER 6 Towards an RF Monetary Discipline: The RF Commodity Indexation Discipline

In the first five chapters of this book, the reader was introduced to the Judeo-Christian-Islamic foundations of the RF finance and its two pillars: the RF Commodity Indexation Discipline and the Marking-to-Market Discipline. Chapter 5 reviewed the history of money and the evolution of fiat (paper) money and the current monetary system, which is based on paper money. In this chapter, the RF Commodity Indexation Discipline and its use to detect price, economic bubbles, and market excesses will be applied and explained in detail. A call for a new beginning for an RF Monetary Discipline is made.

THE CYCLICAL NATURE OF THE FIAT MONEY ECONOMY

Professor Ahmad Kamal Meera1 authored an insightful book on the economics of fiat money, bank fractional reserves, and interest, in which he concluded that the fiat money interest-based system causes asset bubbles, particularly after the potential gross domestic product (GDP) levels of an economy have been reached. He described a five-stage process to the creation of cycles in a fiat money-based economy. It is important to state here that the purpose of this discussion is not to criticize the current monetary system or advocate changing it—that is not our goal or the purpose of this book—but rather to throw more light on how the system works, in order to coexist with it and to allow for it—in the short term—while designing, implementing, and operating the ...

Get The Art of RF (Riba-Free) Islamic Banking and Finance: Tools and Techniques for Community-Based Banking, 2nd Edition now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.