Pakistan is currently grappling with serious economic
challenges. Rising debt, high inflation, financial instability and unequal
distribution of wealth are issues that have become a cause of concern not only
for government policymakers but also for ordinary citizens. A new book
published in such circumstances has attracted the attention of domestic and
international economists and has brought a fundamental question back to the
center of debate: should commercial banks be allowed to create new money
through loans?
The book “Breaking the Trap of Debt, Inflation, Interest and
Poverty”, published in collaboration with the Institute of Policy Studies (IPS)
and the Policy Research Initiative for Zakat-Based, Interest-Free Economy
(PRIZE), examines this question. The authors of the book are Qaanit Khalilullah
and Sohaib Umar, who are chartered accountants with extensive experience in the
financial sector of Pakistan.
Addressing a launch event in Islamabad, the authors
criticized the current financial system and argued that in today’s banking
system, commercial banks create new money through the issuance of loans, which
results in inflation, increasing debt burden, concentration of wealth and
financial imbalances in the economy.
They said that although money creation through private
lending is a normal part of the current financial system, its social and
economic impacts are very profound. According to them, this process leads to an
extraordinary increase in asset prices, wealth is concentrated in a few hands,
while financial risks are ultimately borne by the public.
The book presents the concept of Full-Reserve Banking as an
alternative to the current system. Under this model, the power to create new
money will be with the state alone, while the banking system will be divided
into two separate parts. One part will provide safe custody services while the
other will be dedicated to investment and risk-based financial activities.
According to the authors, the implementation of this model
can help reduce government debt, better control inflation, enhance financial
stability and create an economic structure more compatible with Islamic
financial principles.
The book launch was attended by renowned economists,
policymakers, bankers, university professors and Sharia scholars. The
participants included Ambassador (retd) Syed Abrar Hussain, Vice Chairman of
IPS, Professor Dr Tahir Mansoori, former Vice President of International Islamic
University Islamabad and Member of Sharia Board of Askari Bank, Ahmed Waseem,
former Head of NIBAF-SBP and Dr Salman Syed Ali, former Lead Researcher of
Islamic Development Bank.
During the event, it was agreed that although the theory of
full reserve banking is still considered a controversial topic in the
mainstream economy, this book sparks a very important debate about who
ultimately benefits from the process of money creation and who pays for it.
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