Common currency for Islamic countries: is it viable?

Abstract

With the passage of time, we have realised that economic integration in world is causing havoc in the international economies. This integration mainly includes trade and financial liberalisation. The debate about the common currency regime has evolved over time but the most talked about common currency Euro has not helped to avoid or overcome the financial crisis. The monetary market integration might not be helpful for flourishing of financial system in favour of growth of the economies so Islamic countries may avoid such experiments. In this article, we will discuss various reasons with the historical background and data analysis which will support the argument that diversities in socio-economic and political conditions might not be helpful in attaining the ultimate goal of integration between Islamic countries. An option of reserve currency formation by the Islamic countries is also explored in our study.

Keywords:

• Economic integration
• common currency
• diversities
• Islamic countries
• reserve currency
• Islamic Development Bank

Acknowledgements

The authors are thankful to Dr. Anwar Shah, Dr. Abdul Jalil and Dr.Mohammad Jamil for their guidance and support.

Availability of data and material

The data sources have been mentioned in the manuscript which can also be provided on request.

Disclosure statement

The authors declare that they have no competing interests.

Notes

1 See appendix for further details.

2 Balassa – Samuelson effect states that flow of “technology-receptive” foreign investment is more in the open sector which leads to more- growth in it compared to the closed sector. Wage increase is more in open sector which induces the urge of wage increase in the closed sector as well. The prices have to be increased in closed sector so the inflation will grow within the country.

3 Mintz (1970) also supports the argument political factor cannot be ignored in while moving towards the common currency.

4 Brazil, Russia, India, China and South Africa.

Additional information

Notes on contributors

Ankasha Arif

Ankasha Arif Lecturer at University of West London, Ras al Khaimah Branch, UAE. The author conceived the main idea and worked on conceptual framework; data collection; analysis and hypothesis testing along with write up.

Malik Shahzad Shabbir

Malik Shahzad Shabbir is PhD scholar at University of Lahore. He organized the study and proof read the results and developed the linkages between variables in the write up along with literature review of various articles.