The Main Objective of Monetary Policy and its Determinant Institution in Islam's Economic System

By referring to harmful effects of inflation on economy economists seek to justify the necessity of policy making for the purpose of setting the prices. In order to investigate the Islamic approach to monetary policies, the present paper tries to answer the question whether the Islamic government or the central bank has any commitment concerning the setting prices? The research uses an analytical- descriptive and deductive method. The main assumption of this research represents that since money is a kind of social contract, it is necessary that Islamic government preserves its value according to the Quranic verse which reads: "keep your promises" and due to the negative effects of expansive monetary policies. The research findings show that according to the preliminary decree of Islam the government has to honor its under taking in order to preserve the value of national currency, and it is permissible for Islamic government, according to secondary decree, not to carry it out when this proves expedient and as long as this expediency exists. Hence, independence of the central bank and reviewing the country's monetary law is very necessary for preserving the value of the currency of the country.