samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: The changing landscape of financial regulation – implications for Islamic finance Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 7th Independence Federal Savings Bank (IFSB) summit on Global Financial Architecture, Manama, 4 May 2010. *  *  *  It is my pleasure to be here on the occasion of the 7th IFSB Summit on Global Financial Architecture: Challenges for Islamic finance. I am honoured to be invited to speak on the ongoing regulatory and supervisory reforms being undertaken following the recent international financial crisis, focusing on its implications for Islamic finance particularly in the context of strengthening the financial stability of the Islamic financial system. It was exactly 10 years ago in a speech here in Bahrain when I reflected on then the remarkable achievements of Islamic banking and highlighted that while the amount of funds managed in the Islamic financial system was only a fraction of the total assets of the international financial system, it represented that portion of financial activities that was truly supported by underlying productive capacity that generated growth of economies across continents, and that, it was this form of financial activities that we should encourage, as opposed to the financial flows that were destabilising and destructive.

The prices we can get for the goods we sell have not kept up with the prices we have to pay  Page 4  for the goods we buy. This has made us poorer as a country. The fall in our national real income has manifested itself in a rise in the prices we have to pay for the things we buy as consumers. The developments in energy prices have been particularly stark. The impact of that is very clear in the data so forgive me for spending a bit of time setting that out too. Chart 1: CPI inflation projection with direct energy contribution Based on market interest rate expectations  The purple bars on this chart show that a big part of the rise in consumer price inflation has been caused directly by energy prices. But the chart also shows the almost mechanical flipside of that. In the MPC’s central projection, inflation falls quite sharply over 2023 as last year’s large increases in energy prices drop out of the annual calculation. Page 5  Chart 2a: Typical household energy bill Smaller of Ofgem energy price cap and Energy Price Guarantee  This next chart illustrates what is going on. The blue line on the left-hand chart shows the evolution of the ‘typical’ household energy bill. Nobody actually pays the typical energy price bill, of course, but it has become an industry standard as a measure of what households pay on average.
The relative de-emphasis of institutions and values since the middle of the 20th century did not reflect a lack of recognition of their significance in affecting economic behaviour and public policy. I would argue that it was largely the result of various factors and assumptions: first, that for a given country institutions and values could be taken as given elements of the broader economic environment that evolved very gradually over time; second, that their effects on economic behaviour were indirect and relatively small, compared with the influence of other determining factors of demand and supply; and third, that their role in explaining market developments and economic relationships would be captured in terms of two key fundamental market determinants: “productive technology” and “preferences” of economic agents and authorities. There are two key questions of scientific and policy relevance. First, what are the underlying factors and forces that shape preferences, drive scientific and technological advances, foster innovation and nurture an entrepreneurial spirit that ultimately are encapsulated in the economy’s production processes and the functioning of markets? Second, to what extent does the observed economic performance of nations reflect these underlying factors and forces, which may be partly captured by economic institutions and prevailing economic cultures and social models? Since the late 1990s, increasing attention has been paid by economists and policy-makers to finding answers to these questions.

At the same time, a relatively low coverage of unemployment benefits means that the risk of poverty is comparably high. Rigid wage bargaining structures in the formal economy generate a highly compressed wage structure. Together with a large and inefficient public sector, the features of this model may render public finances increasingly unsustainable. The differences in the institutional features of the four models and the related growth and employment performance clearly show the relationship between values, institutions and economic outcomes. While, in the first place, there might be differences in the importance which the various European nations attach to fundamental values such as protection from poverty, safety of employment or income equality, the resulting domestic institutions and regulations make a crucial difference. For example, whether countries choose to protect workers from unemployment through restrictive employment protection legislation or through generous unemployment benefits has an impact on the overall level of employment: stricter employment protection legislation in the Continental and Mediterranean models appears to a have an adverse impact on employment creation, whereas generous unemployment benefits seem to play only a secondary role.5 Similarly, the probability of escaping poverty is greater in the Nordic and the Continental models, which is not only the result of a generous tax-benefit system, but also a consequence of higher human capital endowments (see Chart 8). 5  See Sapir (2005), as well as recent work at the OECD, e.g. van den Noord et al (2006).
In conditions of reduced import prices, the inflation continues to slow down, so that the average as well as the annual inflation rate for February equaled 1.2 and 0.7 percent, respectively. Inflationary developments within the first two months of this year show that inflationary path for this period is under the projected one. Such deviations, to a large extent may be explained with the fast decline of oil prices on world markets and with even faster deceleration of food prices. In conditions of risks for a possible bigger then expected deceleration of domestic demand, as well as due to higher reduction of  2  BIS Review 60/2009  import prices, risks about the projected inflation are towards realizing lower then projected level of inflation. Figure 1 Inflation (in %)  3)  In the external sector during 2008 the highest ever current account deficit of 12.7 percent of GDP was realized, which is a significatn increase (by 5.5 percentage points) compared to the previous year, and to a large extent it is explained by the trade deficit worsening and reduced net inflows from private transfers. Yet, such a gap, during the most of the year has not created strong pressures towards NBRM foreign exchange market interventions, having in mind that in a significant part it was financed by direct investments, as well as through foreign assets of domestic banks.

At the same time, issuers are assured that their financing needs, especially the long term ones, will be met in an orderly and timely way. By providing such an assurance, a secondary market ensures that savings are pooled and invested in the economy in a cost efficient manner. In this respect, a vibrant secondary market is therefore an important aspect of the price discovery process. Chairperson, an active secondary market is important to central banks as it facilitates the efficient conduct of monetary policy. This is because, to effectively implement monetary policy, central banks depend largely on the ability to influence financial markets. Therefore,  BIS Review 26/2008  1  with a vibrant secondary market, monetary policy effects are transmitted to the rest of the economy in a more transparent manner, which in itself contributes to price stability. At this point in time, it is opportune for me to outline briefly the efforts Government has made towards developing our secondary markets. Since the early 1990s, the government has taken steps to develop the securities market. There has been good progress made on the developing the primary market, though further refinements can be made to the structure. As for the secondary market, it has barely evolved beyond the elementary levels.
Thus, after a decade of persistently low inflation and difficulties of central banks in reaching inflation targets, last year this trend reversed and we have been witnessing a return of inflation across almost all economies. About half of the emerging economies have inflation higher than 7%, which is the highest share in the last two decades. In North Macedonia, as a highly open and import dependent economy, inflation has reached 8.8%. Although supply shocks tend to be temporary and usually limited to price changes of a limited number of consumption items, the recent data points that price shock may be more persistent and more broadly based than initially anticipated. For example, in emerging economies, more than half of the items of the consumption basket have high inflation, including services that tend to have more persistent effect. More persistent and broad-based price changes may lead to "backward-looking" inflationary expectations, as was the case before 1990, affecting the wage-setting process. In fact, the latest Consumer Survey of the EC indicates that inflation expectations in most of the CESEE economies have already picked up. So, how temporary and how strong the effects can be? According to the latest IMF forecast, the current crisis may result in higher global inflation by 3.6 p.p. with stronger effect in emerging economies, where it is estimated to average close to 9%. In a regional context, expectations go up to 8.0%.

We maintain, against all temptation of nilateralism or deregulation, our commitment to the multilateral rules of the game in place since 2009. And we are stabilising these rules once and for all: there will not be a Basel IV. In sum, 2017 positively marked a turning point for both the United States and France. The beginning of 2018 has thus been characterised by a welcome optimism, but one which must not act as a disincentive: confidence yes, complacency no. We must not lie back and enjoy the return of blue skies; we must take steps to ensure that this improvement is transformed into stronger and sustainable growth. To this end, I wish to make four collective wishes for the coming year. 2. Four wishes for 2018 My first wish concerns Europe. This does not so much concern our monetary policy, which has 1/3  BIS central bankers' speeches  entered a gradual normalisation phase, and which is a success; I will not discuss it further this evening during the "silent period". 2018 must above all be the year of Economic Union, which still largely remains to be built. We must now or never take advantage of the recovery to tackle the shortcomings of the euro area. Because France and Germany’s electoral calendars are aligned for the first time in 15 years, and since last Friday, there is a prospect of a pro-European coalition in Germany.
In the Asian pragmatic and patient way, and using the wise words of the late Deng Xiaoping, we cross the river by groping for the stones. I am confident that in the end, we will be able to build a robust and efficient Asian monetary network that would contribute to monetary and financial stability, and economic prosperity in Asia, and in turn contribute to global financial stability and prosperity. 61. I cannot end this lecture without paying tribute to the tremendous support and co-operation that the Hong Kong Monetary Authority has received since its formation only four and a half years ago. I want specifically to acknowledge the unstinting support of the People’s Bank of BIS Review 91/1997  - 13 -  China and the Bank of England. Without their guidance the Hong Kong Monetary Authority would not have become a reality. The Bank of Japan, the Bundesbank and the Federal Reserve Bank of New York have also been generous in their support when we went around the international financial centres to explain the unique concept and practice of “one country, two systems”. All our fellow central banks and monetary authorities in EMEAP, SEANZA, and BIS showed us great kindness and support during the sensitive transitional period to the resumption of sovereignty by China in 1997. Indeed, the Hong Kong Monetary Authority is itself the fruit of monetary co-operation. 62. When asked what comes after 1997, we used to give the very simple reply: what comes after 1997 must be 1998.

The capital adequacy ratio followed a downward trend, even though it remains clearly above the minimum level required by the regulatory framework. Analysis of resilience to various shocks and risks indicates that credit risk is the primary source of banking sector risk. Furthermore, the banking system is more protected from direct market risks, but it continues to be exposed to the effect, on credit quality, of undesirable exchange rate and interest rates fluctuations. Therefore, in its supervisory capacity, the Bank of Albania requested commercial banks to timely and properly identify non-performing loans, establish relevant reserve funds and take determined action to recover loans through execution of collateral. These actions, combined with reduced operational costs, would establish gradually the conditions for a positive and stable financial position, which would support better the banking sector’s need for capital. In a shorter term, the Bank of Albania has requested the banking sector to strengthen activity capitalisation, through increased shareholders capital. The Bank of Albania has oriented and monitored this process closely, so that it takes place in compliance with the development strategy and relevant risks performance. The process to strengthen capitalisation indicators in the banking sector includes creation of adequate capital above the required minimum. The 2  BIS central bankers’ speeches  process continues in line with specifications that the Bank of Albania has discussed and communicated with the banking sector. As a result of this measures, the banking sector would remain stable and establish conditions for its higher contribution to Albania’s economic growth.
But if secondary effects arise, or if inflation expectations rise, monetary policy may need to be tightened. It is important for monetary policy that what started as increases in oil and food prices in the world market does not spread to other areas and that inflation expectations in the slightly longer term do not become entrenched at a higher level, but fall back towards the inflation target once again. We know that inflation expectations can be largely explained by the actual rise in inflation. However, we do not know very much about how monetary policy affects inflation expectations over and above the effect via inflation, and how inflation expectations in their turn affect long-term inflation. There is an interesting approach in the academic research which involves the general public looking at outcomes and gradually learning how the economy functions and how the central bank reacts. If households are to believe that the central bank focuses on low and stable inflation they must be able to observe such behaviour. But such a process may take time, which we in Sweden could conclude in the mid-1990s when our own inflation target was established. This is an area we need to study more. Wage costs rising more than before In the Monetary Policy Report we assumed that hourly wages would increase by an average of around 4 per cent a year during the three-year agreement period. This is around 1 percentage point a year more than during the previous three-year period.

It is marked by very frequent settlements (three settlement sessions a day at the National Bank of Poland), which ensures a brief settlement cycle and a closure thereof within a single working day. The exchange of payment orders between banks is effected only electronically. In addition to the ELIXIR system, KIR S.A. has recently launched the EuroELIXIR system (in January 2006, 34 banks including the National Bank of Poland and nine out of ten largest Polish banks participated in the system), designed to settle euro-denominated transactions, both domestic (with no amount-related limitations) and cross-border ones (up to 12,500 euro and, as of January 1, 2006, up to 50,000 euro). In the case of cross-border transactions, this can be achieved due to the National Bank of Poland’s participation in the STEP 2 and EURO 1 systems. Despite a relatively high level of development of the Polish payment infrastructure, it is hardly used by individual consumers. Poland has witnessed a significant progress in the development of e-banking over the past few years; however, compared to other EU Member States and the neighbouring countries, our position is still weak, taking into account the number of customer bank accounts and the number of non-cash payments by payment cards. For instance, in terms of the number of transactions at POS terminals per one card issued in Poland, we rank extremely low vis-à-vis other EU Member States. In 2004 in Poland, approx.
Moreover, in my opinion it is not clear that the current level of household debt entails any risks to financial stability or the macro economy. But once again – potential risks should and can be managed using other means than monetary policy. Monetary policy should instead be aimed at maintaining price stability and attaining the lowest sustainable rate of unemployment. Let me conclude on a positive note. Previously, as I see it, it was not so easy to determine where the main dividing line went in views on monetary policy, and the discussion therefore tended to have less focus than it ought to. Recently, the dividing line has become clearer, which is good. A situation that I nevertheless believe there is fairly considerable agreement on is that there are other tools than the repo rate better suited to managing household debt and promoting financial stability. Monetary policy should be “the last line of defence”, not the first line. As I noted earlier, a potential framework for macroprudential policy is being investigated. Once a framework is in place, monetary policy will be “unburdened” in that one of the tasks that some people feel it should carry out will be removed – namely to prevent a substantial buildup of debt in the household sector. This means that the differences of opinion on monetary policy should decline considerably. And hopefully this will happen fairly soon. In Sweden we have deliberately chosen to have a high degree of openness regarding monetary policy.

This means that unemployment in Sweden is as high as that in the United States and almost as high as in the United Kingdom (7.9 per cent). At the same time, unemployment is much lower in other countries that should reasonably be comparable with Sweden, such as Germany (5.4 per cent), the Netherlands (5.4 per cent), Austria (4.4 per cent) and Norway (3 per cent).24  22  I describe this in more detail in, for instance, Svensson (2011a). 23  National Institute of Economic Research (2012, Figures 12 and 43). 24  Data gathered from Eurostat and the Bureau of Labor Statistics. As a result of the differences in publication dates between the countries, the most recent figures refer to July with regard to the United Kingdom and Norway, and to September for the Netherlands, Germany, Austria, Sweden and the United States.
That said, an improving path could be seen throughout Q2, in tandem with the ongoing gradual reopening of the economy. At present, then, we are witnessing an incipient recovery in the economy, which, however, is still incomplete, uncertain and uneven. The correlation of this economic activity during Q2 with the intensity of the restrictions on people’s movement in force at each point in time was very high. Thus, some indicators that measure people’s movements hit record lows in the first two weeks of April, with declines of around 80% in motorway traffic and fuel consumption, and of over 90% in the case of airport traffic. This was reflected in the high-frequency indicators of economic activity in the weeks in which the lockdown was stricter; then, for example, we saw reductions in electricity 1  consumption by firms and in consumer spending paid using cards of approximately 30% and 60%, respectively. For April as a whole, there was an unprecedented event in the time series when some variables fell practically to zero. This was the case of new car registrations and international tourist inflows, the latter variable obviously being closely related to the restrictions on personal movement. Since early May, and to a greater extent in June, the progressively staggered and regionbased easing of the lockdown measures prompted a gradual recovery in the mobility indicators and, in tandem, in economic activity indicators.

Housing market activity has begun to recover, and a widely followed national home price index is up 12 percent over the 12 months ending in September.1 Anecdotal reports suggest that this higher-than-expected increase in home prices is due to a relatively low number of homes for sale. Due to this shortness of supply, there is reason to expect increases in starts going forward. Yet another bright spot on the horizon is the fact that growth prospects among our major trading partners have improved following a few years of lackluster performance which induced a sharp slowing of growth of U.S. exports. In particular, the euro area appears to have emerged from a protracted recession and is experiencing modest but positive growth. To summarize, while growth in 2013 has been disappointing, I believe a good case can be made that the pace of growth will pick up some in 2014 and then somewhat more in 2015. The private sector of the economy should continue to heal, while the amount of fiscal drag  1  2  Based on the CoreLogic home price index including distressed sales. BIS central bankers’ speeches  should subside. Despite near-term concerns, growth prospects among our major trading partners will improve further next year. This combination of events is likely to create an environment in which business investment spending will strengthen. As growth picks up, I expect to see more substantial improvement in labor market conditions and a gradual updrift in inflation back towards the FOMC’s target rate.