In a move that certainly cannot be considered surprising, the United Arab Emirates’ central bank has announced the creation of a new certificate of deposit that will comply with Shariah. The move will allow Shariah banks access to liquidity instruments that heretofore have been unavailable because conventional CDs are inherently violative of Shariah prohibitions against interest.
The new Shariah-compliant CDs will be based on some sort of commodity-based mechanism.
The purpose of this is obviously to promote Shariah-Compliant Finance. As more Shariah-compliant products come on line more and more banks in the Middle East will be compelled to become Shariah-compliant because they won’t have the excuse that not enough Shariah products are available.
This has the potential to start a chain reaction as these same banks have dealings with banks in the rest of the world. They can then insist that their arrangements with other banks be Shariah-compliant. Western banks have proven themselves to be all-too willing to go along.