Abstract
In addition to discuss economic cycle’s theories in this paper by decomposing money market into two markets of "saving-depositing" and "investment-credit facilities", we study the time structure behavior of depositor-bank-investor and conclude that the traditional banking structure creates fluctuations in money sector and interest rate. These fluctuations affect the real sector through saving and investment and undulate the economy as well. Mathematical derivations show that banking structure is one of the main factors of economic cycles. Therefore, the abolition of usury (Riba) is proposed as the solution to relate directly investment to saving via The Rastin Profit and Loss Sharing Banking. In this framework, the bank offers investment management services and obtains commission. In The Rastin Profit and Loss Sharing Banking risks are practically transferred from credit facility sector (loans) to deposit sector and bank does not face any losses. On the other hand, the creation of a strong structural relationship between the interest rate of deposits and credit facility interest rate does not let any losses to occur in the capital market while there is profit in the deposit market. This concept is against the conventional banking system in which if the borrower obtains profit or loss; he has to pay interest (profit) to the depositor.The second pathological defect of economic crisis is the excessive consumption and economic greed and similar bad habits which expand economic cycles. The adjustment of mankind behavior, according to Islamic and other divine religions ethical and mystical tuitions, will practically prevent the intensity of crises. Prevention of extravagance frees a large portion of economic resources, and therefore, the magnitude of the business cycle will be reduced, and economic stability will be relatively increased.
Highlights
Countries of the world have always experienced business cycles in the economy with a sinusoidal trend
The Austrian school of thought13 can be put forward, which believes that the cause of credit changes is the monetary expansionary policies of central banks. This school refers to the role of interest rate as the price of capital for investment and agrees that in an open economy without a central bank, interest rate describes the real-time preference of borrowers and lenders, but central bank disturbs this equilibrium between them and inevitably creates fluctuations in the economy
Partnership Certificate is anonymous papers with a fixed face value and with a period equal to the duration of investment and is issued by the Rastin Profit and Loss Sharing bank. The holders of these papers participate in the profit of investment project according to the face value and the period of participation, and in exchange with its capital management services rendered to depositors, the bank can invest depositor's deposits in one of the three banking products defined by Profit & Loss Sharing (PLS) banking instructions
Summary
Countries of the world have always experienced business cycles in the economy with a sinusoidal trend. The Austrian school of thought can be put forward, which believes that the cause of credit changes is the monetary expansionary policies of central banks This school refers to the role of interest rate as the price of capital for investment and agrees that in an open economy without a central bank, interest rate describes the real-time preference of borrowers and lenders, but central bank disturbs this equilibrium between them and inevitably creates fluctuations in the economy. Bank will face losses during this period of time and after a time lag will compensate it by the increase of credit facility rate This lag is not quite visible for people, from an economic point of view, it creates a special dynamic relationship between supply and demand for capital. This analysis can be seen in the following graph: Saving interest rate r S
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