The economic instabilities and crisis which have direct effect on the well-being of the people in the society are caused by many issues and variables. People can work to earn income and improve their lives through all difficulties in the economic conditions. People also save some of their income for their future needs. Their save money would be affected by inflation and their purchasing power would be diminished. Inflation is mostly a matter of monetary policy which occurs when a government prints money without real asset backup more than the amount that is need for a stable economy. This study examined the effects of implementation of Islamic currency on the prevention of ...view middle of the document...
They want to have their saved money safe and with the same or at least a little bit lower purchasing power than the current time. Inflation is the problem that most of people are worried about and are reluctant about the future problems caused to them. Paper money in today’s world is the one of the most important issues that causes inflation because, mostly governments print fiat or paper money based on their perception of market need without having real assets to back up them. Since, there is no real asset-backup for the fiat money printed, it would be over printed and inflation occurs which would diminish the purchasing power of people in the society.
1.1 Background of the study
There are insufficient studies done on the relationship of implementation of Islamic currency Dinar and Dirham which are backed by real assets and the prevention of inflation. The fluctuation of prices and the ever-rising inflation would be controlled and prevented by implementing the Islamic currency model which introduces Dinar and Dirham that are backed by Gold and silver. By doing this, people can prevent these inflations and bring the economy into a stable condition to have more realistic observation to their futures. According to Adnan (2008), “when governments print money more rapidly than economic growth, the money supplies overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued- this situation is called inflation” (page2). From the early ages until now people around the world had economic relationships with each other and had used different commodities to exchange to other commodities according to their timely needs. Since the exchange of commodities was becoming difficult because of different needs and also seasonal impacts on commodities, people got to use a stable intermediary commodity for exchange purposes, as Adnan (2008) states, “such an intermediate commodity can then be exchanged for the commodities. Such an intermediary commodity would need to be something that did not perish and is reliably available throughout the year. Such commodities have been many throughout history such as copper, gold, wine, silver and shells” (P.1).
1.2 Statement of problem
By passing of time the banks used to give deposit notes to those who deposit their valuable properties such as gold and silver, and those notes were being circulated and used as a medium of exchange. In the modern era the governments started issuing paper money without having any real asset in backup but instead just backed by the support of the government. The usage of fiat money (paper money) in the economy has caused inflation in the economy and diminished the purchasing power of people in the society.
1.3 Objective of the study
This study aims to:
1. Identify the effects of inflation caused by using paper money not based on gold or other real assets in the economy.
2. Discover the outcomes of the implementation of Islamic...