Interest-Free Bonds and Central Banking Monetary Instruments

Since conventional bonds include Riba (interest), they are not allowed to be used in the Central Banking under the Islamic economics system. By introducing various interest-free bonds for central bank, commercial banks, treasury and corporate entities in domestic and foreign currencies as substitutes for traditional bonds, this paper provides an Islamic financial innovations strategies which will be accomplishing the infrastructures for development of financial markets in both domestic as well as foreign financial markets. These asset-based papers have no pre-fixed interest coupons, and are based upon “loan equal to future debt” or, “debt equal to future loan” with “time-drawing right” which is handed to the other party and outlines the primary market. The secondary market has been designed based on information technology. Furthermore, these interest-free financial innovations include no-short pricing of the securities below its face value, and will substitute for traditional bonds and will stabilizing domestic and foreign exchange markets.