At the same time, price stability contributes to a “safe and efficient payment mechanism” and facilitates stability in the financial system in general. The question discussed is whether the central bank’s responsibility for financial stability also means that financial stability should be an objective for monetary policy. I interpret the literature as there being a great deal to indicate that financial stability should in principle be an objective not only for macroprudential policy but also for monetary policy, although it will be a practical and quantitative question to determine in each given situation how much financial stability should be considered in monetary policy decisions. 29 In principle, it would be best if monetary policy and macroprudential policy could be coordinated, but there are also relevant arguments against such coordination. 30 It is claimed that macroprudential policy and microprudential policy should be the “first line of defence” against financial stability risks and that monetary policy should focus on stabilising inflation and growth in the real economy. But given the strong links between financial stability, price stability and real economic stability, it cannot be ruled out that monetary policy sometimes needs to be used to mitigate financial stability risks. How much depends, among other  26  In the preparatory works for the Sveriges Riksbank Act, it was stated that the Riksbank, without prejudice to the price stability target, should support the goals of general economic policy with a view to maintaining a sustainable level of growth and high rate of employment.

Zeti Akhtar Aziz: Current issues and developments in Islamic banking and finance Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the ASLI’s Conference on Developing Islamic Banking and Capital Market: “New Opportunities, New Market and New Frontier in Islamic Banking and Finance”, Kuala Lumpur, 25 August 2004. *  *  *  Islamic banking and finance has emerged as a financial intermediation process that is competitive and resilient and that contributes to the overall wealth creation, growth and development of our nation. Amidst an increasingly challenging and competitive financial environment, the evolution of a comprehensive Islamic financial system seeks to meet the range of requirements of a rapidly changing economic environment, with its soundness and stability secured through the robustness of its regulatory framework supported by the strength of its financial infrastructure and the sophistication of its products and services. Indeed, the strength of the respective components of the system and the interconnections of its markets will open new frontiers in Islamic banking and finance and will maximize the potential and opportunities that it accords. Distinguished guests, It is my pleasure to be here today at this conference organised by ASLI to speak on the current issues and developments in Islamic banking and finance. The Islamic financial system in Malaysia has evolved as a viable and competitive component of the overall financial system, complementing the conventional financial system as a driver of economic growth and development.