The emerging interest in Islamic finance includes countries such as Australia, Germany, United Kingdom, France, Italy, Luxembourg, Hong Kong, Japan, Korea and China, with initiatives in introducing Islamic finance in their financial systems. Such developments would create a dynamic and competitive environment for the global Islamic finance industry. The development of the Islamic financial system is guided by Shariah principles that form the very foundation which contributes to its overall stability and resilience. Shariah embodies Islamic law with rules and regulations derived from the Quran and Sunnah, or practices of Prophet Muhammad. The intrinsic value propositions embedded in Islamic finance are universal and subscribe to the values of ethical finance and socially responsible investment. In essence, it is a requirement for Islamic financial transactions to be supported by an underlying economic activity, with business and trade activities that generate legitimate profits. This precondition ensures that the funds are channelled into productive economic activity, thus strengthening the link between financial and productive flows. This serves to protect the Islamic financial system against the excesses, in terms of leveraging, imprudent risk taking and speculative activities that were root causes of the recent global financial crisis. Profit and risk sharing are also fundamental elements in Islamic finance which strengthens incentives for appropriate due diligence to be undertaken to ensure the economic viability of business activity and profits that are commensurate with the risks involved. This in turn increases for greater transparency and disclosure in Islamic financial transactions.

One can argue that exchange rate certainty is not an essential complement to the European single market - any more than exchange rate fixity is essential to achieving benefits from free trade more generally. But there is no doubt that intra-European exchange rate certainty would - through the increased competition resulting from greater transparency of prices and lower transactions costs, through broader and deeper capital markets, and through the associated improvement in economic resource allocation - enhance the benefits derived from the single market. Whether or not it is essential, therefore, most people would, I think, agree that, other things equal, exchange rate certainty would be very desirable in this context. The potential disadvantage of monetary union can equally be simply stated, though it is perhaps more difficult to assess. Essentially there is a risk that the single monetary policy - the single, one-size-fits-all, short-term interest rate - within the euro area, which is a necessary corollary of the single currency, will not in the event prove to be appropriate to the domestic needs of each of the euro-member countries. There is no doubt that such risk exists. It may result from cyclical divergence where for example would we be in the UK now, confronted as we are with relatively strong domestic demand growth, if we were obliged to have German- level interest rates? Or where would Germany and France be as they struggle to sustain domestic demand if they were constrained to have interest rates at the UK level?