Islamic central banking in theory and practice

Thanks to their role as creators and implementers of monetary policy, central banks in most modern countries have the status of key financial institutions and pivots of financial system stability. During the centuries of evolution of central banking, numerous models and instruments of monetary policy were developed, the application of which depended largely on the political environment and the dominant economic model in specific countries. Unlike conventional central banking, Islamic central banking has been in global economic practice for only a few decades. An authentic and Shariah-compliant model of Islamic central banking is still in its infancy. Therefore, the practice of Islamic central banking is largely based on the application of instruments of conventional central banking, which, according to Shariah compliance, are used in their original or modified form or are excluded from use. In this paper, we will present the development path of Islamic central banking, the goals and obligations of Islamic central banks, a set of Shariah-compliant monetary policy instruments, the practice of Islamic central banking in certain countries, and limitations for the efficient functioning of Islamic central banks in practice.