An Examination of Digital Currency Applications in Islamic Banking
- Project Research
- 1-5 Chapters
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Background of the Study
Digital currencies, including cryptocurrencies and central bank digital currencies (CBDCs), are increasingly influencing global financial markets. In Islamic banking, digital currency applications offer new opportunities to modernize financial transactions while maintaining Shariah compliance. These digital currencies can facilitate faster, more secure, and transparent transactions, which are critical for improving operational efficiency and customer satisfaction (Ibrahim, 2023). Islamic banks are exploring the use of digital currencies for various applications such as remittances, asset tokenization, and even as investment vehicles. The integration of blockchain technology, in particular, ensures that transactions are immutable and transparent—a feature that aligns well with the ethical requirements of Islamic finance (Al-Hassan, 2024). As regulatory bodies develop frameworks for digital currencies, Islamic banks are poised to harness these technologies to expand their product offerings and enhance financial inclusion (Rahman, 2025).
Statement of the Problem
Despite the promising prospects, Islamic banks face several challenges in adopting digital currency applications. A major issue is ensuring that digital currencies adhere to Shariah principles, which requires rigorous oversight and the development of specialized frameworks. The volatility of cryptocurrencies and the lack of standardized regulatory guidelines also pose significant risks (Ibrahim, 2023). Moreover, integrating digital currency systems with existing legacy infrastructures can result in operational inefficiencies and security vulnerabilities. Inadequate technical expertise and resistance to change further complicate the adoption process. These challenges impede the full realization of digital currencies’ potential to improve transaction efficiency and expand market reach in Islamic banking.
Objectives of the Study
- To assess the applications of digital currencies in Islamic banking.
- To identify challenges in ensuring Shariah compliance and system integration.
- To propose strategies for effective adoption of digital currency solutions.
Research Questions
- What are the current applications of digital currencies in Islamic banking?
- What challenges exist in aligning digital currencies with Shariah principles?
- What measures can facilitate the integration of digital currencies into existing systems?
Research Hypotheses
- Digital currencies enhance transaction speed and transparency in Islamic banking.
- Volatility and regulatory uncertainty hinder effective adoption.
- Strategic integration and robust oversight improve digital currency utilization.
Scope and Limitations of the Study
The study focuses on digital currency applications in Islamic banks in selected markets. Data will be obtained from technology assessments, regulatory documents, and expert interviews. Limitations include high market volatility and evolving regulatory frameworks.
Definitions of Terms
– Digital Currency: A form of currency that exists in digital or electronic form.
– Blockchain Technology: A decentralized ledger used to record digital transactions securely.
– Shariah Compliance: Conformity with Islamic law in financial practices.
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