Islamic economics as a new field in the modern economic science recognizes not only the principles and operations of Islamic commercial banks but also central bank as the monetary and economic authority. Amongst all, the main functions of a central bank in Islam are to maintain price stability and prosperity of the whole people. Although it seems indifferent with the conventional concept of central bank, the Islamic central bank conducts its monetary operation by using Islamic monetary instruments which are free from interest, links with the business sector activities and gives value added into the economy. The progressive development of the Islamic banking industry demands the appropriate Islamic monetary instruments to control the industry and economy in general The aim of this paper is to review Islamic monetary policy and Its Impact to the development on Islamic Banking in Indonesia. The method used in this study is an examination of existing literature.
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