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The theory of interest has always been a very difficult area in economic literature. However in this study; “ Interest is an intermediary between debt and return or wealth and return. If interest is redefined in this meaning, we have to upload it new functions and a new way of usage principles. The monetary authorities use the interest rate as its instrument of control to stabilize the economy. The magic word “interest” is a measuring unit and important parameter for economic indicators and parameters.If the interest rates low in an economy, it is taken as a positive indicator for the economy, if it is high, it shows the problematic structure of the economy in that specific country. Accordingly, investors rush for investment or retain from investment. But in the case it is high, there is no economic stability, no trust in the economy, people are not in welfare and the governments spend most of their time to offset interest and inflation rates which led by fundamental interest rates.In this regard, interest is not an economic factor playing role in the only economy but also it plays a crucial role in the social life of all societies. It is a basic determinant in lending, investing and all funding operations with different names; nominal interest, compound interest, accruals, ROI, ROE, IRR, etc… However, without time in all computations, it does not mean a lot.So, in this study, this great duo will be taken on hand in deep, and their roles in interest- free banking/financing will be explained. Also, I will try to show the uses and limitations of interest-free applications in guiding financial decisions in practice. In this paper, I am sincerely interested in introducing a new system of interest-free banking not as a supplement to the prevalent system of banking but to substitute the same. But I am not taking the subject on hand from any theological point of view. In the study, there are two types of interest; positive interest and negative interest. Here I am neutralizing the negative interest ( credit interest = interest paid) with positive interest( deposit interest = interest yielded). The study is fully based on this reality., Faiz teorisi ekonomik literatürde herzaman zor bir alan olmuştur. Ancak bu çalışmada; “faiz” borçla getiri arasında, varlıkla getiri arasında bir araç olarak tanımlanmıştır. Eğer faiz bu anlamada yeniden tanımlanacaksa, faize bu yeni fonksiyonu yüklemeli kullanma prensiplerini belirlemeliyiz. Çünkü Para Otoritelerince ekonomiyi istikrara kavuşturmak için bir araç olarak da kullanılmaktadır.Aynı zamanda, bu sihirli kelime “ faiz” ekonomik gösterge ve modeller yönelik bir ölçü birimidir. Ekonomide faiz oranları düşükse, bu durum ekonomide pozitif bir gösterge olarak kabul edilmekte, eğer yüksekse ilgili ülkede ekonomik yapıda problemlerin olduğunu ifade etmektedir. Yatırımcılar da bu göstergeye gör ilgili ülke piyasalarına girmek için akın etmekte ya da böylesi piyasalardan uzak durmayı tercih etmektedirler. Faiz oranının yüksek olduğu durumda, ekonomik istikrarın olmadığı gerekçesiyle ekonomiye güvenilmemekte, halk refah içinde değilse hükümetler zamanlarının çoğunu faiz ve enflasyon oranını temel faiz oranıyla dengelemeye çalışmaktadırlar.Bu açıdan bakıldığında; faizin sadece ekonomide çok önemli rol oynayıcı olduğu değil, tüm toplumların sosyal yaşamında da hayati önemde bir rol oynayıcı olduğu görülmektedir. Faiz borçlanma, yatırım ve neredeyse hemen tüm fonlama operasyonlarında farklı isimlerle anılan temel beliryecidir. Bu isimler; nominal faiz, birleşik faiz, tahakkuklar, yatırımın getirisi, iç getiri oranı, eldeki fonların getirisi ve daha birçok isimleri saymak mümkündür. Fakat şu da bir gerçektirki; fonlama aşamasında eğer süre belirtilmemişse faiz tek başına bir şey ifade etmemektedir.Dolayısıyla bu çalişmada, faiz ve süre ikilisi “muhteşem ikili” olarak derinlemesine ele alınacak ve faizsiz finansman kavramı açıklanacaktır. Aynı zamanda faizsiz finansmanın sınırlamaları da bu çalışmada ortaya konulacaktır. Çalışmada, faizsiz finansmanı mevcut bankacılık uygulamalarının yerine alternatif bir işlem önermiyorum. Çalışmanın kapsamı ancak yeni bir uygalama alanı olarak uluslararası boyutta ek bir işlem olarak uygulanabilir. Önemle vurgulamak istediğim şudurki; faizsiz finans konusunu teolojik açıdan ele almadığımdır. Çalışmada iki tür faiz ele alınmaktadır. Mevduatın getirisi olan “pozitif faiz” ve kredinin götürüsü olan “negatif faiz”. Burada yapılan, faizlerin kredi kullanıcı lehine nasıl nötürleştirilebildiğini, açıklanan sistemin bankacılık, finansman ve ekonomiye nasıl katkılar sağladığını ortaya koymaktan ibarettir.

This study is aimed at evaluating the customer’s awareness and satisfaction toward Interest-free Banking and its role on Ethiopia economic development with some selected Commercial Bank in Ethiopia. To achieve the aim of the study the primary data was collected from Customers and Managers of the selected banks by using convenience method through questionnaire and interview. While, secondary data was collected by compiling and summarizing the bank’s Annual reports and Journals. The collected data was analyzed in descriptive and inferential analysis. The finding of the study depicts as low customer awareness regarding Interest-free Banking services except the Interest-free Banking account holders. Further, majority of Interest-free Banking account holders are more or less satisfied with the current Interest-free Banking services provided since, it can potentially serve as an alternative banking channel in filling the gap left unaddressed by conventional banking and economic development in relation to idle monetary resource mobilization and allocation, inviting to use banking system, creating employment opportunity, supporting GDP growth and assisting in stabilizing crisis and arresting inflation. Based on the study result it concluded as Interest Free Banking have its own role on the country economic development through mobilizing the idle monitory resource, allocating the monitory resource, creating employment opportunity, and inviting to the banking system. Therefore, it recommended as the banks should make aggressive promotion on Interest Free Banking services for customers awareness specially those of out of Muslim customers, the government has to support and should give more emphasis to enable Interest Free Banking service, promote Interest Free Banking which can help assist the economy in stabilizing economic crisis and arresting inflation.

Though now almost entirely forgotten, Herbert Spencer was among the most widely read thinkers during the late nineteenth century. As part of his system of synthetic philosophy, Herbert Spencer addressed the topics of money and banking. This philosophic system articulates a concept of justice based on the principle of equal freedom. Invoking this principle, Spencer rejected a government-superintended regime of money and banking as unjust. Instead, he morally favored a system of free banking. Spencer also defended this system on economic grounds. His argument was that banks could be self-regulating in their management of the money supply, on the condition that the government limit its activities in the financial sphere to the enforcement of contracts. While Spencer’s case is not beyond questioning on philosophic and political grounds, he offers a distinctive and forceful analysis.

Since a few decades several sub-disciplines within economics have witnessed a reorientation towards institutional analysis. This development has in particular also affected the fields of macroeconomics and monetary theory where it has led to several proposals for far-reaching financial and monetary reform. One of the more successful of these proposals advocates a fractional-reserve free banking system, that is, a system with no central bank, but with permission for the banks to operate with a fractional reserve. This article exposes several conceptual flaws in this proposal. In particular several claims of the fractional-reserve free bankers with respect to the purported working characteristics of this system are criticized from the perspective of economic theory. In particular, the claim that a fractional-reserve free banking system would lead to the disappearance of the business cycle is recognized as false. Furthermore an invisible-hand analysis is performed, reinforcing the conclusion that fractional-reserve free banking is incompatible with the ethical and juridical principles underlying a free society. Key words: monetary and banking regimes, comparative institutional analysis, fractional-reserve free banking, business cycle, invisible hand. Clasificación JEL: B53, E32, E42, E5, G18, H11, K39, P3, P34 Resumen: Desde hace algunas décadas varias subdisciplinas de la economía se ven reorientadas hacia el análisis institucional. Este desarrollo ha afectado más específicamente también a los campos de la macroeconomía y la teoría monetaria donde ha llevado a varias propuestas de reformas financieras y monetarias de gran alcance. Una de las propuestas más exitosas aboga por una banca libre con reserva fraccionaria, o sea un sistema sin banco central en el cual, sin embargo, los bancos puedan operar con una reserva fraccionaria. Este artículo comenta varios defectos conceptuales de dicha propuesta. Más específicamente, varias alegaciones de los banqueros de la banca libre con reserva fraccionaria relativas a las supuestas características operativas de este sistema se critican partiendo de la teoría económica. Más en particular, se denuncia como errónea la alegación de que una banca libre con reserva fraccionaria llevaría a la desaparición del ciclo económico. Además, se realiza un análisis de mano invisible lo cual refuerza la conclusión que la banca libre con reserva fraccionaria es incompatible con los principios éticos y jurídicos propios de una sociedad libre. Palabras clave: banca libre con reserva fraccionaria, ciclo económico, mano invisible.

The gold standard was quite stable in the past: the price level changes were relatively small, and trade cycles mild. However, its past stability does not guarantee stability nowadays. We show that the stability of the gold standard to shocks stemming from the world gold market depends critically on the size of the monetary stock of gold relative to the extent of these shocks. Every change decreasing the relative size of the monetary stock of gold lowers its stability. We discuss some consequences of the thesis too: first, any system economizing on its gold reserves (e.g. the mature fractional reserve free banking system of the Scottish type) may undermine the stability of the gold standard. Second, an attempt to reestablish the gold standard may have to include a collective action of many countries of a great economic power. If a single small country tried to resume to the gold, its monetary stock of gold would probably be tiny relative to the world gold market shocks, and the economy could be destabilized by these shocks. It makes the return of the gold standard rather improbable in the near future. Key words: Gold Standard, Stability, Inflation, Trade Cycle. JEL Classification: E31, E39, E42, N10.

Despite the distinctive character of the Austrian approach to «microfoundations for macroeconomics», the literature on free banking contains a number of arguments which make use of game-theoretic concepts and models such as the well-known Prisoner’s Dilemma model. While there can be no general a priori presumption against the possible usefulness of game-theoretic concepts for Austrian theorizing, in the context of the debate on free banking such concepts and models have been used with varying degrees of perspicacity. One example which is elaborated in the paper is concerned with the interaction configuration between independent banks in a fractional-reserve free banking system, which has sometimes been modeled as a One-Shot Prisoner’s Dilemma game. This conceptualization does not provide a sufficient argument for the in-concert overexpansion thesis, nor for the thesis that fractional-reserve free banking will tend to lead to the establishment of a central bank. The author drops the implicit assumption that there exists a one-to-one correspondence between the outcome matrix and the utility matrix. When it is acknowledged that banks in a fractional-reserve free banking system need not necessarily adopt a «myopic», self-regarding perspective but may recognize the long-run harmony of interests between the banking sector and society at large, a different conceptualization and a different matrix representation emerge. Key words: Economic Mechanism Design; Business Cycle Theory; Prisoner’s Dilemma; Free Banking. JEL codes: D01, E31, E32, E42, E52, E58, E66, G18, K39. Resumen: A pesar del carácter distintivo del enfoque austríaco de las «microfundaciones para la macroeconomía», la literatura sobre la banca libre contiene algunos argumentos que recurren a los conceptos y modelos de la teoría de juegos tales como el conocido modelo Dilema del Prisionero. A pesar de que no puede existir una presunción a priori sobre la posible utilidad de conceptos de la teoría de juegos para las teorías austríacas, en el contexto del debate sobre la banca libre tales conceptos y modelos han sido manejados con distintos grados de perspicacia. Un ejemplo elaborado en el documento comenta la configuración de interacción entre los bancos independientes en un sistema de banca libre con reserva fraccionaria, que a veces ha sido modelado como un juego de Dilema del Prisionero One-Shot. Esta conceptualización no ofrece suficientes argumentos para la tesis de la sobreexpansión in-concert, ni para la tesis de que un sistema de banca libre con reserva fraccionaria tendería a la creación de un banco central. El autor abandona la asunción implícita de que existe una correspondencia de uno a uno entre la matriz de resultado y la matriz de utilidad. Al reconocerse que los bancos en un sistema de banca libre con reserva fraccionaria no deben adoptar necesariamente una perspectiva «miope» y egoísta, pero pueden reconocer la armonía de intereses a largo plazo entre el sector bancario y la sociedad en general, surgen una conceptualización y representación de la matriz distintas. Palabras clave: Diseño de mecanismo económico; Teoría del ciclo económico; Dilema del Prisionero; Banca libre. Códigos JEL: D01, E31, E32, E42, E52, E58, E66, G18, K39.

What currency system is conducive to economic development? Economists from various economics schools are trying to answer this question.Different opinions of economists advocating the existence of a global currency as well as those who believe that there should be competition between currencies and the associated ‘free banking’ have been presented. The problems associated with the concept of optimal currency areas are also discussed. The last section discusses the controversy surrounding the question: “monetary commun-ities or national currencies?”.

This study extends the capital-based macroeconomic theory to include international capital flow thus extending it to an open economy and analyze it in the context of the BFH system, Free banking system and 100 per cent reserve ratio. In all these, it was noticed that interest rate would barely change even though the possibility of interest rate changes was not ruled out completely. A test of these systems was conducted on Latvia, Lithuanian, Kazakhstan and Kyrgyzstan and was successful. However, it must be noted that these are just proposition as these systems are not in place at the moment. In furtherance to this, past and present monetary system used by the countries exhibited similarities to these systems, even though difference could largely be seen.

The proposal of interest-free banking is very old because Islam restricted the interest base transaction at very beginning after the revelation of prohibition of Interest, noble Quran called it as Riba. This prohibition is of sever nature relatively, Allah says; O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. The suggestion for the establishment of such financial institutions that run according to shariah has been put in queue for about centuries. To get rid from the dominancy of conventional banking system, forced the religious scholar to take initiative in this regard and started interest free banking. It was not easy to switch entirely from conventional banking system to Islamic one as for different technical issues, leads the existent banks to start dual banking system. Bank of Khyber is the first Bank of Khyber Pakhtunkhwa operating as dual banking, i.e. Conventional as well as Interest free banking. This study focuses on analysis of dual banking system of bank of KHYBER in order to know the extent of conformity with shariah standards along with highlighting the earlier efforts of it towards Islamization.

The extensive debate over fractional reserve free banking (FRFB) has spanned decades and includes volleys from many contributors. Consequently, relative newcomers to the controversy often wish to extend the conversation on several fronts. In this spirit, Bagus and Howden (2010) is a 27-page paper detailing numerous objections to FRFB, which they modestly entitled, “Fractional Reserve Free Banking: Some Quibbles.” The present paper continues in this tradition, elaborating on some of the key critiques of FRFB raised by others earlier in the debate. In particular, I critically explore two key claims of the FRFB camp: that holders of banknotes implicitly lend funds to the issuing bank, and that the historical periods of relatively free banking illustrate the stability of the system.

In this article we reply to George Selgin’s counterarguments to our article «Fractional Reserve Free Banking: Some Quibbles». Selgin regards holding cash as saving while we focus on the real savings necessary to maintain investment projects. Real savings are unconsumed real income. Variations in real savings are not necessarily equal to variations in cash holdings. We show that a coordinated credit expansion in a fractional reserve free banking (FRFB) system is possible and that precautionary reserves consequently do not pose a necessary limit. We discuss various instances in which a FRFB system may expand credit without a prior increase in real savings. These facets all demonstrate why a fractional reserve banking system —even a free banking one— is inherently unstable, and incentivized to impose a stabilizing central bank. We find that at the root of our disagreements with Selgin lies a different approach to monetary theory. Selgin subscribes to the aggregative equation of exchange, which impedes him from seeing the microeconomic problems that the stabilization of «MV» by a FRFB system causes. Key words: Free banking, fractional reserve, monetary equilibrium, credit expansion, economic cycle. JEL Classification: B53, E32, E42, E5, G18, H11, K39, P3, P34. Resumen: En este artículo respondemos a George Selgin, que a su vez respondió a nuestro artículo «Fractional Reserve Free Banking: Some Quibbles». Selgin considera que los saldos de tesorería son ahorros, mientras nosotros nos fijamos en los ahorros reales necesarios para mantener proyectos de inversion. Ahorros reales son ingresos reales no consumidos. Variaciones en los ahorros reales no necesariamente coinciden con las variaciones en los saldos de tesoreria. Mostramos que una expansión crediticia coordinada es posible en un sistema bancario de reserva fraccionaria (FRFB) y que las reservas prudenciales no constituyen necesariamente un limite a la expansión co - ordinada. Discutimos varios escenarios en los que el sistema FRFB puede expandir los créditos sin un aumento previo en los ahorros reales. Todas estas facetas muestran que un sistema bancario de reservas fraccionarias —incluso uno de banca libre— es inherentemente inestable y produce incentivos para imponer un banco central estabilizador. Mostramos que el origen de nuestras diferencias con Selgin está en un enfoque diferente a la teoría monetaria. Selgin es partidario de la ecuación de intercambio que es muy agregada y que le impide ver los problemas microeconomicas que la estabilización de «MV» por parte del sistema FRFB produce. Palabras clave: Banca libre, reserva fraccionaria, equilibrio monetario, expansión crediticia, ciclo económico. Clasificación JEL: B53, E32, E42, E5, G18, H11, K39, P3, P34.

Ethiopia has a substantial number of Muslims estimated more than 38 million. Ethiopia accommodated Islamic finance in its financial system through interest-free banking window in 2011 and Full-fledged interest-free banking by the end of 2019. This study aims to investigate the prospects and challenges of the newly adopted full-fledged interest-free banking system. For these purposes, several secondary data collected and analyzed descriptively. The result indicates that Islamic finance has a notable opportunity in Ethiopia. Unbanked huge customers, lofty demand, the profitability of IFB windows and the ability of under formation full-fledged interest-free banks to collect the minimum paid-up capital easily indicate the prospects. While negative perception toward Islamic finance, legal framework challenges like the exclusiveness of banking business activity, limitation on investment of banks, tax system and unavailability of controlling mechanism last but not least lack of experts and skilled resource are identified as the main impediments of the sector. Therefore, it is recommended to the government of Ethiopia to make accommodative adjustments on the legal frameworks to resolve the shortcomings and for educational institutions to provide programs, seminars, and training in the area of Islamic finance in order to produce experts that serve the sector.

This paper provides a reassessment of the free-banking history of Switzerland, which included both a period of unfettered competition (1826–1881) and one of strong banknote regulation (1881–1907). Unfettered competition between note-issuing banks gave rise to a fragmented paper-money system, with limited liquidity banknotes. To increase confidence in these notes, the federal government introduced a minimum-reserve requirement and a mutual-conversion rule in 1881. Based on a theoretical model and new empirical evidence, this paper shows that this enhanced regulation came at a cost, as it led to the overissuing of banknotes and an inelastic paper-money supply.

Bu çalışmada dünyada giderek yaygınlaşan faizsiz bankacılık sistemi bağlamında İran’daki faizsiz bankacılık sistemi incelenmiştir. İran’a uygulanan ambargonun kaldırılmasıyla dünyaya açılan İran pazar hacminin tüm Dünya ülkelerinin merceğinde olması hem de İran-Türkiye arası bankacılık sektöründe yapılabilecek yatırımların büyüklüğü bu çalışmanın ortaya çıkmasında etken olmuştur. Türkiye açısından yeni fırsatlar doğurabilecek bu durum oldukça önemlidir. Bu nedenle, çalışmada öncelikle faizsiz bankacılık uygulamaları İslami bankacılık açısından değerlendirilmiştir. İran bankacılığındaki fon toplama ve kullandırma işlemleri incelenmiştir. Türkiye’nin çok uluslu mekanizmalardaki etkinliği göz önünde tutulursa İran ile birlikte yapılabilecek projelerle uluslararası sistemin yaygınlaştırılmasına katkı sunulabileceği düşünülmektedir. This study evaluates Iranian systems in concordance with ever growing worldwide interest-free banking sector. Iranian market size opening to the world following removing sanctions that all nations focus and investement size in banking sector betwen Iran and Turkey motivated to study Iran. It is also of great significance for Turkey to result in new opportunities. Therefore, interest-free banking system is evaluated in concordance with Islamic banking. Fund collecting and delivering means are examined in Iranian baking system. Contribution may be made to widening international system by joint projects with Iran provided that Turkey’s efficient position in multi-national mechanisms.

In this article the features of Crypto Currencies, which are not backed by governments, are investigated with regards to their specialties, usage areas and current structures. In this context the newly invented crypto currencies are compared with currency types that were in use in different periods of history. A similarity between Crypto Currencies and Free Banking Era Banknotes is noticed and thus investigated in details. The possible risks and outcomes with regards to the future usage of crypto currencies are analyzed and elaborated.