Another major area requiring international collaborative efforts is the harmonization of Shariah interpretations. It is imperative for Shariah scholars globally to undertake in-depth studies and research to accelerate innovation and enhance the global integration of the Islamic financial system. Harmonisation of the differing views among the scholars from different schools of thought is necessary to enhance the global development of Islamic finance. Although variations in the Shariah principles and interpretation for takaful contract and practices are currently not a major concern, efforts should be undertaken to further minimize these variations in interpretation that may hinder the smooth progress and innovation in the development of takaful. In this regard, Malaysia has taken the initiative in promoting greater cooperation among Shariah scholars. In 2005, Bank Negara Malaysia organized an annual Shariah Scholars Dialogue that brings together renowned scholars from many parts of the world to discuss as well share and learn from each other's experience. In addition, Bank Negara Malaysia has established an endowment fund amounting to RM200 million to facilitate the activities of Shariah scholars. Other than financing the periodic dialogues among the Shariah scholars, the fund would also promote research, provide scholarships and establish better interaction among these Shariah scholars and industry practitioners. It is hoped that this effort would contribute effectively to further enhance interaction and understanding in the area of Shariah and Islamic finance. The final area of focus in creating a progressive takaful industry is the need to build greater international linkages and strategic alliance among the Islamic financial institutions. 25.

In the final analysis, the Bank of Thailand decided to tighten interest rates with the view that maintaining inflation stability, notwithstanding the short-term adverse impacts, was necessary for sustained economic stability and growth in the long run. I could go on with more of such examples from further back in time, but I am sure that you are well aware of them. However, the past is not always a good predictor of the future. And indeed, the Thai economy is currently faced with a new kind of challenge. This leads me to my second point. The preeminent challenge to the Thai economy in the medium term is how to cope with the unwinding of global imbalances, a slowdown in the world economy, volatile global financial markets, and an appreciating baht. Thailand, like many emerging market economies with a small and shallow financial market, is particularly vulnerable to fast-moving international capital. Such rapid movements of capital flows, if vastly out of line with the underlying economic fundamentals, can have negative impacts on the export or import sectors depending on the direction of exchange rate movement. In our case, the recent surge in speculative capital inflows has caused a rapid one-way appreciation of the baht relative to regional currencies. The appreciation, which was vastly out of line  BIS Review 20/2007  1  with our economic fundamentals, if left unchecked, could be detrimental to not only the export sector but also economic stability. In dealing with the rapid appreciation, conventional wisdom suggests an adherence to market mechanisms.