Zeti Akhtar Aziz: Potential role of Islamic finance in strengthening the New Silk Road Special address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at GIFF Investors & Issuers Forum: "Islamic Finance: The New Silk Road", Kuala Lumpur, 28 March 2007. *  *  *  Up until the 14th century, the Silk Road served as a major global conduit between ancient civilizations in the East and West. It created mutual prosperity, encouraged knowledge transfer and enhanced understanding between civilisations through trade, cultural and technological exchange. Now in the 21st century, globalisation and liberalisation, and the emergence of new financial centres and their increased integration have created an environment of flourishing activity reminiscent of the Old Silk Road. Indeed, it suggests that a New Silk Road has emerged. This new route not only carries flows of oil, manufactured goods, and technological innovation, but also flows of direct investment, portfolio capital, private equity and human capital. Previously, silk was one of the main commodities traded on this route. Now, the emergence of Islamic financial products and services has brought together financial services providers across continents to trade on this new route. The emergence of the New Silk Road reflects the increasing and evolving economic and financial relationships and inter-linkages, with Islamic finance well positioned to further facilitate these linkages to offer mutually-reinforcing benefits to those who participate in it. Indeed, the New Silk Road opens up the prospect of exciting opportunities for economic progress and prosperity for us all.

Particularly economic independence of central banks – the freedom of taking policy decisions independently of political interference – places Chile well above the average level of independence of both emerging and developed economies in 2003. Chile has shown a responsible fiscal policy, which has contributed significantly to successful monetary policy. During the 1990s, the fiscal balance averaged a surplus of 1.5% of GDP. The above-mentioned structural fiscal surplus rule stabilizes government spending over time, by linking it explicitly to permanent government revenue. Therefore fiscal dominance of monetary policy is ruled out in Chile, as a result of central bank autonomy and Chile’s sound fiscal policy. Public debt has shown a substantial decline since the 1990s, as a result of prudent fiscal policy. The share of consolidated gross public debt has been reduced from 76% of GDP in 1990 to 20% of GDP in 2006, whereas the consolidated net public debt position turned from 34% of GDP in 1990 to -6% in 2006 (figure 3). The successful performance of the fiscal position has been enhanced by the fiscal balance rule applied since 2001 (figure 4). Chile’s good growth performance, complemented by a market-based incentive structure, appropriate regulation and sound supervision of the financial system, has resulted in a safe and sound financial system and deep capital markets. As a result of the major banking crisis that came with the deep 1982-1983 recession, the 1986 Banking Law enhanced regulation and supervision of the financial system.