Theoretical framework of money supply (Comparative Comparison of Conventional Economics and Economics with Islamic Approach)

Money is one of the most useful and one of the most controversial economic issues. Understanding the concepts of money is therefore essential to a proper understanding of the functioning of the economy and the interaction of its components. The purpose of this study is to investigate and critique money supply in microfoundation level in conventional economics and economics with an Islamic approach in a descriptive manner by referring to library resources and examining case studies and it answers these questions: Is the money supply endogenous or exogenous? Is it possible money creation in Islamic economics? What variables do the money supply in an economics with Islamic approach? The findings of the study show that the flaws in money creation in Islamic economics are: economic instability, lack of social justice, declining economic growth, failure of banks to repay deposits. So it is not possible to create money in the economics with an Islamic approach. Within the framework of Islamic teachings, it is only possible for the government (the central bank) to issue money, since the Islamic State is interested in the public interest and therefore the benefits of the money will be returned to the people themselves. Commercial banks are a financial intermediary that cannot create money and bank deposits are not money. In Islamic economics, the supply of money is considered endogenous, given the Accommodationism view and by limiting interest rates in the economics with the Islamic approach. In the end, the effective factors for money supply are: real production, inflation, the degree of public confidence in the monetary system.