ERM-II is a useful prelude to full euro area membership and, other things being equal, will reduce exchange rate volatility. But ERM-II membership is not a magic solution, and the accession process can prove risky. As a result, it is important that economic policy and the regulatory framework be designed to maintain economic stability and keep financial risk within acceptable limits. Most of the changes that will improve economic policy under a flexible exchange rate will also be helpful in the run-up to euro area membership. These changes are discussed in greater detail later in this chapter. Chapter 24 focuses on what euro area membership and full participation in European Central Bank (ECB) operations entails. A number of amendments must be made to the Act on the Central Bank of Iceland in order for the Bank to fulfil the requirements made of national central banks in the euro area, as regards independence and the ability to carry out the tasks entailed in euro area membership. In addition, increased requirements are made concerning central banks’ participation in the formulation and implementation of financial stability policy (see Chapter 25). Money serves as a medium of exchange, a unit of account, and a store of value. The better it retains its value against goods and services and other currencies, the better a store of value and the more reliable unit of account it is. The more it used in trade and the more generally it is recognised in settlement, the better a medium of exchange it is.

The takaful and insurance industry also facilitated affected certificate holders by offering temporary deferment of contribution and premium to promote continuity of takaful protection coverage. More than 1.1 million9 certificate and policyholders have benefited from this relief measure. While the pandemic has yet to peak in some countries, others including Malaysia are heading towards periods of recovery while continuously managing the risk of virus resurgence. As this phase commences, Islamic finance has significant potential and role to play. Three attributes, at least, come to mind on how Islamic finance can respond and contribute meaningfully towards sustainable and inclusive growth:  First, Islamic finance must be value-driven and impact-focused to deliver Maqasid Shariah (the objectives of Shariah). The intrinsic values of Islamic principles are aligned with a vision of economic growth that is balanced, sustainable and inclusive. Shariah advocates for balance between wealth creation and wealth circulation. This in turn promotes fairness and ihsan in promoting the attainment of benefits as well as preventing harm. This crisis has indeed created a wealth of opportunities for Islamic finance. Shariah contracts can deploy a diverse range of capital that is risk-absorbent, patient and philanthropic in nature using instruments such as risk sharing, waqf and sadaqah to support inclusive finance. The flexible nature of such capital encourages allocation of resources towards entrepreneurial ventures and social impact projects that can improve and rebuild well-being of society. It can also to some extent help smoothen structural adjustments in the economy.