Debt-free banking model linking money creation to real growth, eliminating interest entirely.
Debt-free banking model linking money creation to real growth, eliminating interest entirely.
Under the current fractional reserve system, commercial banks create most of the money supply through interest-based lending, leading to excessive debt, inflation, and financial instability.
This system fuels boom-bust cycles, persistent inflation, and systemic risks like bank runs, as credit expansion is detached from real economic output.
A full-reserve banking system, rooted in Islamic principles and supported by economists like Milton Friedman, proposes:
This model eliminates domestic interest-bearing debt, removes fiscal deficits, and enables stable, non-inflationary growth by aligning money supply with real economic output.
The transition is technically feasible and non-disruptive, requiring no change to public deposits or financial market functioning.
Commercial banks would function as true intermediaries, operating on a profit-and-loss sharing basis. This aligns with the Islamic prohibition of riba and promotes equitable, asset-backed finance.
Only the State Bank creates new money, debt-free, and introduces it responsibly through public spending.
Ensures stable growth by linking money supply to real GDP, avoiding inflation and speculative booms.
Rooted in Islamic values, focusing on public welfare, stability, and ethical money creation.
Caps money supply to GDP growth, controlling inflation and eliminating domestic debt and interest costs.
Technically feasible transition without deposit or market disruption; increases trust and resilience.
Prohibits riba; operates on profit-sharing, directing real savings into productive, Shariah-compliant investments.
Commercial banks create most of the money through interest-based loans, expanding credit far beyond real economic output.
Drives debt-fueled growth, frequent crises, inflation, and asset bubbles.
Prioritizes credit expansion and profit for banks, without social justice considerations.
Inflation is common due to uncontrolled credit; governments rely on borrowing, creating heavy interest burdens.
Relies on a risky, debt-driven system vulnerable to bank runs and speculation.
Based on riba, profiting from money on money; even unproductive lending earns banks income.