Foreign Currency Deposits and International Liquidity Shortages in Pakistan

This paper studies the implications of foreign currency deposits (FCDs) for international liquidity shortages in Pakistan. The analysis focuses on how the large volume of FCDs and the specific institutional characteristics of those deposits have made the Pakistan economy highly vulnerable to exogenous shocks. The analysis shows that FCDs created another channel for government borrowing, and fiscal sustainability in a “closed” system may be very different from sustainability in a more “open” system. There is a need to think of these issues in terms of total balance sheet vulnerability, and we recommend measures that would make domestic-currency-denominated assets attractive to investors.Capital Account Liberalisation, Financial Development, Dollarisation

Foreign Currency Deposits and International Liquidity Shortages in Pakistan

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper studies the implications of foreign currency deposits (FCDs) for international liquidity shortages in Pakistan. The analysis focuses on how the large volume of FCDs and the specific institutional characteristics of those deposits have made the Pakistan economy highly vulnerable to exogenous shocks. The analysis shows that FCDs created another channel for government borrowing, and fiscal sustainability in a “closed” system may be very different from sustainability in a more “open” system. There is a need to think of these issues in terms of total balance sheet vulnerability, and we recommend measures that would make domestic-currency-denominated assets attractive to investors. JEL Classification Numbers: E52; F41 Keywords: Capital Account Liberalization, Financial Development, Dollarizatio

Islamic Economics and Finance: An Institutional Perspective

After a millennium of atrophy, Muslims have begun a critical reexamination of Islamic thought in all its dimensions in light of the present state of the world. Arguably the first discipline that began this process during the early decades of last century was political philosophy. Reexamination of economics started much later in the second half of the twentieth century and has continued uninterrupted to the present. There is an ongoing constructive debate among scholars on the fundamental question of whether there is a discipline that can be defined unambiguously as Islamic Economics and if so what are its distinguishing characteristics? This presentation is a modest contribution to that debate. It seems reasonable to suggest that any label or prefix that is attached to an economic discipline must bear concrete relationships with economic system that the discipline serves. Thus, disciplines such as socialist economics, capitalist economics, Buddhist economics, Christian economics, Jewish economics, Gandhian economics and others, relate to an envisioned system defined by its characteristics

An Introduction to Islamic Finance: Theory and Practice -2/E.

Islamic finance has experience remarkable growth over the last three decades and the global demand for financial product and services that comply with economic and financial principles of Islam is increasing day by day, for newcomers to this burgeoning market, An Introduction to Islamic Finance : Theory and Practice offer an excellent overview of the principal concept from two leading scholar in Islamic finance. In the wake of the recent financial crisis, An Introduction to Islamic Finance offer a comprehensive and practical guide for anyone seriously interested in understanding the Islamic finance alternative and the enermous potential it holds

Efficiency with Rule-Compliance: A Contribution to the Theory of the Firm in Islamic Economics

Abstract. The theory of the firm and the profit maximization have been important areas of debate among Islamic economists as being fore bearers of applicability of conventional economic theory in the Islamic economics. One strand of the debate holds the view that the postulate of profit maximization, as a useful theoretical construct, has to be modified for a firm operating in an Islamic economy, while the other strand highlights that Islamic economy has its own normative rules with an underlying institutional scaffolding derived from the Qur’an and Sunnah. Following the second view, this paper is a modest contribution to the debate by demonstrating that once an institutional scaffolding containing the rules of behavior compliant with the Qur’an and Sunnah is in place, the profit maximization postulate becomes a useful concept in Islamic economic theory. The paper also shows that allocation efficiency with equity is possible provided that the firm is rule-compliant, even in case of a monopoly.Keywords. Allocative efficiency, Firm theory, Profit maximization, Profit sharing, Islamic economics.JEL. P42, D21, C6

Controlling information asymmetry in equity crowdfunding

Abstract. Crowdfunding is a fast developing method of projects finance mobilization. However, weakness of trust and the associated problem of information asymmetry constrain risk sharing investments as well as equity crowdfunding. Reputation mechanism is one of the newest ways to address asymmetric information issue in web-based social networks. A reputational mechanism has been designed and named “Fame” in this paper specifically for equity crowdfunding systems to eliminate moral hazard and reduce asymmetric information. The term “Fame” is meant to capture the qualitative aspects of reputation such as trustworthiness, credibility, reliability of every individual member of an equity crowdfunding system. Fame is systematic, countable and computable (implicit and explicit) reputation monitoring mechanism. A game theory approach is employed using two different games: “without Fame” and “with Fame” games, to show that a “with Fame” crowdfunding game leads to better results. Moreover, net aggregate surplus in “with Fame” crowdfunding is larger than “without Fame” crowdfunding system. Keywords. Crowdfunding, Equity crowdfunding, Reputation mechanism, Mechanism of fame, Information asymmetry, Risk sharing.JEL. C70, D82, D85, D91, G23

The validity of balanced and unbalanced growth theories with respect to the process of economic development

Call number: LD2668 .R4 1966 M67

Equilibrium in a Non-Interest Open Economy

This paper analyzes an economy in which there are no interest-bearing assets, only equity shares. Equilibrium conditions are derived for the case of a closed economy, an open economy with trade in goods only, and finally one with trade in both goods and equity shares. It is shown that the rate of return to capital equilibrates savings and investment, that the differential between the domestic and foreign rates of return to equity determines the direction of capital flows, and that under a fixed exchange rate system, adjustments induced by exchange rate changes are channeled through the asset accounts

Islamic Economics and Finance: An Institutional Perspective

After a millennium of atrophy, Muslims have begun a critical reexamination of Islamic thought in all its dimensions in light of the present state of the world. Arguably the first discipline that began this process during the early decades of last century was political philosophy. Reexamination of economics started much later in the second half of the twentieth century and has continued uninterrupted to the present. There is an ongoing constructive debate among scholars on the fundamental question of whether there is a discipline that can be defined unambiguously as Islamic Economics and if so what are its distinguishing characteristics? This presentation is a modest contribution to that debate. It seems reasonable to suggest that any label or prefix that is attached to an economic discipline must bear concrete relationships with economic system that the discipline serves. Thus, disciplines such as socialist economics, capitalist economics, Buddhist economics, Christian economics, Jewish economics, Gandhian economics and others, relate to an envisioned system defined by its characteristics

Whither Islamic Finance? Risk Sharing in An Age of Crises

The aim of this paper is to explore potential path of progress in developing full-spectrum Islamic finance. It will be argued that all Islamic transaction contracts (‘uqud) are risk sharing contracts. Next,the paper will explore ways and means of creating sufficiently strong impetus for widening and deepening the present menu of instruments toward longer time, higher risk-return, investment-oriented instruments. It will argue that governments can create the energy and the incentives within the private sector in this direction by first developing a vibrant and efficient equity market. Such a market will serve to stake out the higher end of the spectrum of Islamic finance instrument menu. Incentives will then allow the private sector to develop risk-sharing instrument in between the low and high end of time, risk-return profile of the menu. The paper will also address principles and methods underlying the legal, regulatory, supervisory infrastructure as well as economic policies needed to organize such an equity market