Abstract
Purpose: This paper aims to examine monetary instruments in Islamic central banking framework. As a conclusion, to revive Islamic monetary policy, we should provide some public equity-based instrument as a necessary replacement for conventional bonds and treasury bills to activate non-usury open market operations.
 Design: We define a type of new negotiable bond as: “Rastin Swap Bonds (RSBs)”, which is based on swapping money between two persons for two different periods.
 Findings: RSB is a financial paper that observes the right for the lender to borrow an equal amount to his lending from the borrower. Four types of RSBs in domestic money and foreign currency are defined, and their Sharia allowances and monetary, fiscal, and financial effects are evaluated.
 Research limitations: This bond is a novel design, and it is required to be more elaborated for further practical development and adjustment.
 Practical implications: Islamic central banking is not different from conventional central banking as a whole, but the role of an Islamic central bank in conducting monetary policy is restricted to use interest-free monetary instruments in an environment that commercial banks are obliged to implement non-usury banking operations.
 Social implications: Islamic financial instruments should be usury-free and efficient in applying monetary, fiscal, and financial policies at different levels of the central bank, government and commercial banks and non-banking money and financial institutions. Rastin Swap Bond will serve as an important instrument for resource mobilization and will be a primary vehicle for the development of the Islamic capital market and central banking operations.
 Originality/value: Conventional interest-bearing bonds are not allowed in Islamic central banking. This restriction mostly distinguishes Islamic central banking from the conventional one in implementing monetary policy.
 Article Type: Technical paper
 JEL: G21, G28, H81
Highlights
Monetary policy is the process by which monetary authority controls the supply of money, usually through interest rate targeting to promote economic growth and stability
Islamic central banking is not different from conventional central banking as a whole, the role of an Islamic central bank in conducting monetary policy is restricted to use interest-free Islamic monetary instruments, and commercial banks are obliged to implement non-usury banking operations[3]
The purpose of this paper is to introduce the new innovative financial instrument, namely “Rastin Swap Bonds” that can be substituted instead of conventional papers and bonds for Islamic financing purposes
Summary
Monetary policy is the process by which monetary authority controls the supply of money, usually through interest rate targeting to promote economic growth and stability. Objectives of central banking, as well as monetary policy, are similar to conventional systems but considering usury prohibition The objectives such as prosperity of the whole humanity and economic stability, stabilizing domestic and external values of money[4], promotion of sustained and balanced economic growth, mobilizing resources for economic development, and improvement of income and wealth distribution and so on - though with different emphases - are considered in both Islamic and conventional central banking systems. Major monetary policy in conventional banking systems is conducted through open market operations and by buying and selling Treasury bonds and other similar valuable papers These bonds and papers are not usable in interest-free banking because they are linked to some interest rates that are not lawful in Islamic Sharia. The conclusion and references are the last sections of this paper
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