Yesterday our central bank, we are informed, reduced statutory reserves requirement from 4% to 3.5 %. The whole idea is our central bank thinks, as the whole world is thinking, that the nation’s economy is going to go down in the near future. So the rationale is leave more money in the banks’ hands so they will lend to companies who will then generate more employment and output in order to counter the falling economy.
Towards a Just Monetary System have very serious reservations against the current economic and banking system. Especially in the light of the required Muamalat system to be practiced by Muslims as expounded in the Quran and Sunnah. But let’s leave that be for the time being and address things as they are.
First of all is it true the banks will lend more to corporates when they have more funds in their hands? Yes this is what Western knowledge believes, this is what the Economics and Banking subjects we learn at universities say, this is what the Professors of Harvard and London School of Economics say, but is it true?
