The UAE-based energy company declared that its USD700 million sukuk was no longer Shariah-compliant – and thus unenforceable – because the scholarly consensus was said to have shifted since issuance in 2003. Now, let’s move on to the future – we need continued certainty. We have come a long way in setting in place the strong foundation of a legal framework. The law review and harmonisation committees have done good work in ensuring that Shariah principles can be imported into Malaysian law in a way that is effective and seamless. The progress of the past has positioned us with both opportunity and challenge at present. To navigate these well, we need to promote continued certainty as we move into the future. This will require excellence at both the institutional and individual levels. Institutional excellence At the institutional level, the judiciary plays a vital role in upholding legal certainty. Judges – along with arbitrators – ensure that disputes are settled by the application of the law, rather than unbounded discretion. The courts also ensure that these laws are intelligible, clear and also predictable. For Islamic finance, the Shariah Advisory Councils (SACs) of Bank Negara Malaysia and the Securities Commission play a complementary role to the courts – by providing Shariah certainty. It is important to note that this role does not [in any way] substitute the function of the judiciary in upholding legal certainty.

Moreover, the supply of these assets is asymmetrically distributed between regions, with the US providing a large chunk of the total. Hence, there is a structural excess demand for dollar‐denominated securities, which sustains permanent capital inflows from emerging economies into the United States. This approach has deep implications. It shows why, for more than a decade now, capital has been continuously flowing “uphill”, i.e. from poor to rich countries, with current account surpluses in emerging economies reflected in growing deficits in the United States. It also helps to explain why asymmetries in financial development between countries generate both payment imbalances and asset bubbles. To the extent that the US financial system did not generate enough “pure” safe assets, this created an incentive for the financial sector to manufacture such assets through the securitization of lower quality loans, but at the cost of greatly increased (if hidden) financial fragility. This fragility became apparent when the whole architecture of securitization collapsed under the weight of excessive leverage and maturity transformation. The point here is that internal and external financial stability are two sides of the same coin. Domestic financial imperfections, on the one hand and distortions in international capital flows, on the other, interact with each other to create and amplify imbalances. Ultimately, financial instability is a product of this through this interaction. International financial linkages therefore can be a source of increased fragility for many national economies, including the largest ones. International financial stability: does it matter? International financial instability manifests itself through various channels.