Full Reserve System and Islamic Banking System Proposal: Comparative Study of Fractional Reserve Free-Banking Theory

Authors

  • Ayif Fathurrahman Department of Economics, Faculty of Economics and Business, Universitas Muhammadiyah Yogyakarta
  • Faiza Husnayeni Nahar Faculty of Economics and Business, Universidad de Granada

DOI:

https://doi.org/10.54471/iqtishoduna.v13i1.2321

Keywords:

intermediary, fracational reserve free-banking, islamic bank

Abstract

This article aims to compare the fractional reserve free-banking theory. The emergence of these theories is due to the impact of fractional reserve banking on the crisis and bubble economy. So that in seeing this phenomenon, the thoughts of Positive Money and the New Economics Foundation, Narrow Banking, LPB (Limited Purpose Banking) and the Chicago plan together contribute controversial ideas to the banking monetary system, namely in the form of fractional reserve free-banking. Because according to some of these thoughts, the current source of modern economic instability lies in the fractional reserve banking system that is applied in commercial banking throughout the world through money creation capabilities, so that the money supply shifts from its equilibrium point. The Implication, intermediary function makes Islamic Banks also face the risk of 'too big to fail', considering the pattern of Islamic Banks is still intermediary. This means that liquidity risk and bank runs are very likely to occur. This is reinforced by the more varied Islamic Bank products compared to Conventional Banks, so there needs to be an effort so that Islamic banks transform themselves from fractional reserve banking to fractional reserve free-banking with the A-F model.

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Published

2024-04-01

How to Cite

Ayif Fathurrahman, and Faiza Husnayeni Nahar. “Full Reserve System and Islamic Banking System Proposal: Comparative Study of Fractional Reserve Free-Banking Theory”. IQTISHODUNA: Jurnal Ekonomi Islam 13, no. 1 (April 1, 2024): 19–34. Accessed July 17, 2024. https://ejournal.iaisyarifuddin.ac.id/index.php/iqtishoduna/article/view/2321.

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