370 chapter nine
absence of interest the real value of loan when returned would not
have been compensated by any means if the value of money has
depreciated (Chapra, 1985). This would entail unfairness to the lender
who is lending at zero interest rate. This is in addition to the adverse
effect inflation may have on the socio-economic justice and general
welfare in the Islamic community.
In as far as the achievement of economic growth and full employ-
ment, is a goal of the Islamic monetary policy, Chapra stresses that
while he is in full agreement with this objective, he warns against
seeking the maximization of economic growth per se as an overall
objective for Islamic fiscal policy. Unnecessary and morally ques-
tionable goods ought not to be produced just to maximize produc-
tion, as this, in the views of Chapra, implies the misuse of divinely
bestowed natural resources. Also, a balance should be maintained
between the production of goods for present consumption and those
for future consumption (Chapra, 1985).
Turning their attention to the use of monetary policy for achiev-
ing distributive justice, most Muslim economists are of the view that
monetary policy should be used to actively promote the goal of dis-
tributive justice in an Islamic economy (Ahmed, et al., 1983). Ariff,
however, is of the view that too much concern of distributive justice
in formulating and implementing monetary policy may unfavourably
affect its overall efficiency and effectiveness in attaining other goals
in monetary policy (ibid.). In laying down his argument Ariffdoes
not imply that achieving distributive justice is not important, but
quite the opposite. He agrees with others in that reduction in income
inequalities should be an important policy objective of the Islamic
state, but he is of the view that this objective can be implemented by
other economic policies rather than overburdening monetary policy
with too many objectives to achieve (Ahmed et al., 1983).
As a policy tool, Islamic monetarists are of the view that in the
absence of the use of interest as a tool in the non-Islamic monetary
system, the central bank can concentrate on controlling the money
supply instead. Adequate control can be exercised on money supply
in an Islamic economy by regulating high powered money, defined
as currency in circulation and reserve assets of banks. Moreover, a
variation in the cash reserve ratio, the liquidity ratio, and credit ceil-
ings may be used to bring about desired changes in money supply.
Moreover, in addition to controlling money supply, monetary policy