Keywords: Islamic economics, fractional reserve banking, full reserve banking, waqf, agent-based modeling


Fractional reserve banking is a system in which banks extend loans by creating credit/deposit money, and which can be considered the basis of modern financial architecture. Nevertheless, it has been criticised because of its inherently weak and fragile structure in terms of financial and economic stability. As a theoretical solution, full reserve banking has been supported in academic circles, with many technical variations. However, Islamic economics can help to maintain financial and economic stability with its original institution of waqf. Besides performing social functions, waqf also undertakes financial intermediary functions and preserved financial stability in the period of the Ottoman Empire. The purpose of this study is to examine the effects of fractional reserve banking on economic stability and to make a comparison with full reserve banking to observe its potential as an alternative solution. The study also examines the efficiency of the Islamic social and economic institution of waqf in maintaining economic stability in both fractional and full reserve systems. The results demonstrate that full reserve banking is a promising approach to maintaining economic stability and that waqf enhances economic stability in both banking systems.

Author Biography

Omer Faruk Tekdogan, Ministry of Treasury and Finance, Turkey

Dr. Omer Faruk Tekdogan is Head of Department at Directorate General of Economic Programs and Research of Ministry of Treasury and Finance. He obtained his BA degree in business administration from İstanbul University, and his master’s degree in economics from North Carolina State University. He received his Ph.D. in Islamic Economics and Finance from İstanbul University. Previously, he worked as a Team Leader at Public Finance Transformation Office of Ministry of Treasury and Finance, and as a Policy Analyst at Development Co-Operation Directorate in Organization for Economic Co-operation and Development, and as a specialist at Undersecretariat of Treasury. He is on the editorial board of Turkish Journal of Islamic Economics (TUJISE). His research interests include Islamic economics and finance, monetary economics, banking, financial economics, and agent-based modeling.


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How to Cite
Tekdogan, O. (2020). INTRODUCING WAQF TO FRACTIONAL AND FULL RESERVE BANKING SYSTEMS FOR ECONOMIC STABILITY. Journal of Islamic Monetary Economics and Finance, 6(3).