The exchange rate, a pivotal determinant of macroeconomic stability, shapes domestic prices, consumption, production, and trade while amplifying exposure to external shocks through structural dollar dependency in trade invoicing, commodity pricing, debt, and reserves. EMDEs such as OIC countries face chronic vulnerabilities - including excessive foreign currency-denominated debt, persistent current account deficits, and exchange rate disconnects from macroeconomic fundamentals driven by risk-sharing shocks, deepening global value chains, and financial contagion. These vulnerabilities are further compounded by escalating geopolitical risks and the ongoing global power shift, underscoring structural implications for the dollar-centric international monetary system and the urgency of cooperative responses. This study proposes an innovative monetary framework for a select group of OIC countries, introducing the Islamic Regional Currency Unit (IRCU) - a weighted member currency basket. The IRCU aims to mitigate currency risk via reduced dollar reliance, enhance regional monetary cooperation, and stimulate intra-regional trade through exchange rate stabilisation. It also positions the OIC within multipolar monetary debates, highlighting both opportunities and feasibility constraints under global integration. Methodologically, exchange rate volatility (ERV) is quantified through moving standard deviations against USD and IRCU, with F-tests, coefficient of variation, and divergence indicators to compare regime-specific patterns. Export-import demand functions are estimated via Cross-Sectional Autoregressive Distributed Lag (CS-ARDL) models addressing cross-sectional dependence and dynamic effects, centred on counterfactual USD versus IRCU trade-invoicing scenarios. Robustness is verified using Common Correlated Effects (CCEMG) and Augmented Mean Group (AMG) estimators; Panel Granger causality tests map ERV-trade linkages. Results confirm the IRCU's efficacy in mitigating ERV through regional currency anchoring, significantly outperforming dollar-pegged regimes. Intra-OIC exports show heightened sensitivity to regional GDP growth with neutralised ERV-trade disruptions; imports demonstrate income-driven growth and lower depreciation sensitivity. Operationally, exchange rate decoupling, volatility insulation, and trade rebalancing under the IRCU reduce dollar dependency through diversified exposure and systemic resilience. Granger tests confirm eliminated bidirectional ERV-trade linkages, stabilising trade flows; robustness checks via Common Correlated Effects (CCEMG) and Augmented Mean Group (AMG) estimators validate structural adaptability across economic heterogeneities. The proposed framework combines exchange rate bands, a Regional Monetary Council, and IRCU-linked commodity pricing to minimise currency risk and strengthen monetary stability in fragmented, dollar-dependent economies. Supported by liquidity safeguards, pooled reserves, and labour market reforms, it is designed to reduce dollar reliance, enhance shock resilience, and realign trade flows. By explicitly recognising feasibility challenges, potential spillover effects, and the need for credible institutions, the framework balances ambition with practical constraints. Institutionalised coordination across fiscal, monetary, and structural domains further underpins monetary cohesion and fosters long-term stability.

Malaysia is one of the fastest growing economy with well-developed dual banking system (Islamic and conventional). The remarkable growth of Islamic banking has led to empirically evaluate its socio-economic implications. This paper is an attempt in this direction to assess the effect of Islamic banking on inclusive and sustainable growth covering three aspects namely, economic growth, income distribution and environment. The study applies ARDL bounds test approach to cointegration. To analyze the impact of Islamic banking on economic growth we use quarterly data set for the period from 2000-2018 and annual data set from 1984-2020 for income inequality and CO2 Emission. The findings suggest that the Islamic banking development contributes only to the economic aspects (economic growth). No evidence has been found to support the contribution of Islamic banking system on social and environmental aspects. The results show that Islamic banking development does not influence income distribution either in short or long-term and decline the quality of environment (increases CO2 emission). The overall finding suggests that Islamic banking failed to foster inclusive & sustainable growth. Malaysia has a dual banking system and both system collectively affect the economy, however this research is limited to evaluate the effect of Islamic banking only on growth, inequality and emission. The research covers only 19 years (2000-2018) to study the relation between Islamic banking and economic growth in view of data availability. The result of no significant impact of Islamic banking on income inequality and positive relationship with CO2 emission is alarming. By virtue, the Islamic finance is supposed to achieve inclusive growth and minimize the gap in income & wealth inequality and contribute to improve quality of environment to achieve sustainable growth. The policymakers need to relook into the business model of Islamic banks with a view to integrate the social and environmental aspects in their business models along with economic & commercial aspects. Moreover; to design policies and improve governance mechanism to minimize imperfections and constraints in Islamic financial system and steer its development towards inclusive and sustainable growth. Further to enhance the participation of Islamic banks in the social business as part of their corporate social responsibilities. The study differs from previous studies as it tries to uncover the relationship between Islamic banking and inclusive & sustainable growth. Further it also contributes to the contemporary debate on the effectiveness of Islamic finance to promote inclusive and sustainable growth.