The Possibility of Creating Money by the Banking System in an Islamic Financial System

One of the issues in Islamic financial system is analyzing the possibility of creating money by the banking system. Based on the research hypothesis, which is studied by an analytic approach, creating money in the Islamic financial system is not legitimate. According to the researches done in the Islamic economics and mainstream economics, there are countless problems with creating money such as economic instability, recession, volatility in money supply, increase in inflation, compulsory growth, environmental degradation, exploitation of workers, corruption of democratic process, rising inequality and denying justice, social deprivation, bankruptcy of banks, imposing deposit insurance, moral hazard, worthless investment and asset bubbles. The findings of this paper, which are analyzed by a holistic -goal-oriented approach that are common in Islamic economic studies, show that creating money by the banking system leads to economic instability, failing to fulfill one`s commitment and “Akal Mal be batel”. Moreover, creating money prevents the achievement of the Islamic financial goals such as; social justice, economical growth, and price control. Consequently, creating money by the banking system in its contemporary form is not legitimate in an Islamic financial system.