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The International Monetary Fund has published a study stating that a central bank digital currency (CBDC) can affect monetary policy in unintended ways. 

This includes an increase in the speed at which money is circulated, disintermediation (cutting out intermediaries), increased volatility of bank reserves, substitution of other currencies, and changes in capital flows. These impacts may be more significant in the Islamic banking system, as per the study.

According to the paper, the Islamic financial system makes up less than 2 percent of the global finance industry but operates in 34 countries and is systemically significant in 15 of them. While only Iran and Sudan have completely Islamic banking systems, ten countries that have some form of Islamic finance are currently contemplating the implementation of CBDCs, including Iran.

The design of a CBDC is made complicated by the Islamic law's prohibition on usury (unjust lending practices) and speculation. This has a significant impact on liquidity management, as conventional methods of liquidity management that rely on interest, such as interbank markets, secondary market financial instruments, central bank discount windows, and Lender of Last Resort (LOLR), are not allowed for Islamic banks.

The Islamic law's prohibition on speculation also means that a CBDC cannot be utilised for foreign exchange derivative transactions. 

Additionally, the development of Islamic liquidity management instruments is slow due to several factors, including the lack of supportive regulations, complexities associated with ensuring Sharia-compliance, limited standardisation, a small number of Islamic banks, and underdeveloped financial sectors in many of the countries.

Due to the absence of infrastructure for Islamic banking in numerous countries, Islamic banks tend to hold a surplus of cash. Since neither deposits in Islamic finance banks nor a halal (Sharia-compliant) CBDC would offer interest, there is a higher risk of bank disintermediation, according to the study.

The response to crypto within the Islamic world has not been consistent. While some countries in the Middle East and North Africa region have witnessed a swift surge in crypto adoption, others have remained stagnant. 

Even among Islamic scholars, opinions differ. For instance, the Securities Commission Malaysia Shariah Advisory Council considers crypto trading acceptable, while Indonesia's National Ulema Council has a contrary viewpoint.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash