The assumption underlying both reports was that the Central Bank’s key objective would continue to be price stability, as is mandated by law, and that the exchange rate of the króna would remain flexible, although it would not need to be entirely free-floating. I will not explain the grounds for these assumptions here, as they have been discussed widely, except to point out that it is unrealistic to entrust monetary policy with objectives other than those it has the chance to fulfil using the available instruments, and that adopting a fixed exchange rate would eliminate the advantages of an independent currency and independent monetary policy without eliminating the disadvantages. Therefore, policy formation lies in finding a framework that can work under the above-described conditions. There were a number of drawbacks to Iceland’s pre-crisis monetary policy framework. A major flaw was the lack of an adequate response to the excessive capital inflows that contributed to credit and asset price bubbles and domestic residents’ significant foreign exchange risk, which was to a large extent unhedged. Furthermore, monetary and fiscal policy were not well enough aligned, and the same can be said of other Government decisions that affected demand. The burden on monetary policy was therefore greater than it would have been otherwise, which further stimulated capital inflows. This, together with strong demand, pushed the real exchange rate higher than it would have been otherwise and exacerbated macroeconomic imbalances, as could be seen most clearly in a sizeable current account deficit.

The new global landscape of growing cross-border financial flows between regions that have national and cultural differences also underscores the need for enhanced recognition and understanding of practices in the different jurisdictions. This imperative translates into high demands on the use of standardised documents and agreements among Shariah compliant financial market players. Standardised documents and agreements increase market efficiency, transparency and uniformity, as well as reduce the cost of transactions as we strive towards seamless global interlinkages. The fourth prerequisite is the catalytic role of Shariah scholars in expanding cross-border Islamic financial transactions. Given the prominence of Shariah in the industry’s advancement, greater internationalisation will require the capacity and capability of Shariah scholars in offering practical solutions to Shariah issues faced by various global participants. Equally important is the efficiency and agility of Shariah scholars in responding to these matters. This calls for continuous discussions and active dialogues involving scholars across the globe. Of importance is also the need for mutual respect and common understanding within the international Shariah fraternity to enable productive and effective deliberations that will facilitate cross-border businesses. Many can indeed benefit from learning and leveraging on these country reports. To better disseminate the information, an idea is for the IDB Regional Office here in Kuala Lumpur to act as a focal point for member countries seeking further information or clarification on the reports. As a measure to further develop Islamic finance, the Regional Office can also expand its scope to include capacity building programmes for member countries.