Reclaiming Economics as a Moral Science: An Islamic Approach to Monetary Reform

Abstract

This paper proposes a new approach to monetary reform grounded in moral economy. Post-crisis reforms focus on technical fixes-macroprudential tools, regulatory redesign, and institutional safeguards-but ignore public welfare. Islamic finance has developed mechanisms for micro-level Shariah compliance but does not have institutional capabilities to protect the public interest. Bridging these gaps, the paper offers a triangular ethical architecture composed of three governance pillars: (i) banks as delegated creators of money; (ii) the state as regulator and macrocoordinator; and (iii) institutionalized moral authority, tasked with ensuring justice and public purpose in monetary governance. For the third pillar, we propose a Monetary Justice Commission, built to ensure just outcomes. The core claim is that financial systems built on public trust must serve public purpose, and that this requires enforceable ethical oversight. Using Pakistan as an illustrative case, the paper shows how moral authority can be embedded at the macro level to discipline monetary power under real-world conditions of institutional capture. The proposed architecture shifts monetary reform from technical engineering to normative governanceensuring that the power to create money is matched by a duty to protect the public good in both boom and bust.

Keywords: Islamic Economics, Monetary Reform, Moral Economy, Macroprudential Governance, Institutional Design, Shariah Governance, Financial Justice

JEL Classification: E50, G21, P51, Z12, B59