Central Banking and Monetary Policy in Muslim-Majority Countries

Central Banking and Monetary Policy in Muslim-Majority Countries

Akhand Akhtar Hossain

This book reviews key aspects of central banking and monetary policy in selected Muslim-majority countries. While reviewing country-specific experiences and issues in inflation and monetary policy, and analysing them from an historical context, emphasis is given to the evolution of Islamic banking and finance and the consequent institutional developments for maintaining price stability. One recurring theme is that, although Islamic banking and finance may have created some complexities, it remains consistent with Classical monetary theory and has created opportunities for improving the infrastructure of central banks and monetary policy to maintain both price and economic stability. The introduction of Islamic banking and finance strengthens the argument for low and stable inflation and rule-based monetary policy. Monetary policy frameworks in these countries include exchange-rate pegging, monetary targeting and inflation targeting under varied restrictions on capital flows. Macroeconomic problems under these regimes are also highlighted and their policy implications drawn.

Chapter 8: Pakistan

Akhand Akhtar Hossain

Subjects: asian studies, asian economics, economics and finance, asian economics, islamic economics and finance, money and banking


Pakistan occupies a large land mass in a highly strategic geographic location at the crossroads of South Asia, Central Asia and West Asia, and has done so through almost all of written history. Not surprisingly, then, it is an ethnically and linguistically diverse country. After India, Pakistan is the second largest middle-income country in South Asia. It is the second largest Muslim-majority country of South Asia with a population around 180 million, of whom 98 per cent are Muslim. Consequently, Pakistan plays an increasingly important role in the economic and political affairs of the Muslim world. Pakistan has made a major contribution to the late twentieth-century emergence, development and growth of Islamic banking and finance. The contemporary economic and political history of Pakistan can conveniently be analysed beginning with the moment of its political independence from Britain in 1947. It was established by partitioning India into three political entities, two of which would together confer political self-determination upon the Muslim people of several regions of the subcontinent. The three political entities into which India was partitioned were, from West to East, West Pakistan, India and East Pakistan. East and West Pakistan, though widely separated geographically, together formed the independent country of Pakistan. Present-day Bangladesh was East Pakistan until its 1971 separation from West Pakistan, now known simply as Pakistan.

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