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 9: Saudi Arabia

Akhand Akhtar Hossain

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

Extract

Saudi Arabia is one of the largest economies in West Asia. In terms of the purchasing power parity measure, Saudi Arabian GDP approximates to 1 trillion US dollars. It is a geographically large country, occupying about 80 per cent of the Arabian Peninsula. With a population of about 29 million, Saudi Arabia is sparsely populated, having an average population density of 12 persons per square kilometre. Saudi Arabia’s contemporary political and economic history can be traced to its foundation as an absolute monarchy by Abdul-Aziz bin Saud in 1932. Saudi Arabia remains today a standard absolute monarchy with the government claiming religious authority to impose a theocratic conservatism upon society. Although Saudi Arabia has maintained social and political stability since the 1930s, there is an undercurrent social and political tension in a rapidly changing economic and political environment. Saudi Arabia is a Muslim-majority country whose governance is executed by a combination of the monarchy and a legal system that largely implements the Islamic law and traditions (shariah). The King acts as the custodian of the two Islamic holy mosques in Makkah and Madina. Together with the fact that it is the birthplace of Prophet Muhammad, Saudi Arabia consequently plays an important role in the Muslim world and is accorded special status by Muslims across the globe.

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