The wider use of commodity murabahah transactions will also add breadth and depth to the Islamic money market as it facilitates a more efficient distribution of money-market liquidity and expands the range of instruments that market participants can actively transact in. We are pleased to announce that Bank Negara Malaysia will soon be adding murabahah-based transactions to our already diverse range of policy instruments to manage short-term liquidity in the Malaysian Islamic inter-bank money market. The Bank Negara Malaysia's murabahah basedtransactions may either utilise global or Malaysian commodities as the underlying transaction, and in the future, other Shariah-approved assets similar to the Ijarah sukuk notes. The widespread usage of this globally practised financing instrument would allow market participation by a more extensive investor base, including those from the Middle-East. Product innovation must be a continuous and deliberate part of the process of market development. We are therefore firmly committed to developing the capabilities in Islamic finance and strengthening the global pool of talent and expertise in Islamic finance to increase the potential for this to happen. As part of the initiative to meet this objective, we have established the International Centre for Education in Islamic Finance, INCEIF, in March this year to offer professional certification programs in Islamic finance, in addition to, Masters and Doctorate programs. Bank Negara Malaysia has also recently  2  BIS Review 74/2006  made available a Shariah Scholarship Award and Shariah Research Grant, available to Malaysian and non-Malaysians seeking to pursue research studies in Islamic finance.

High - and thereby in practice varying inflation and unstable exchange rates can threaten financial stability through several channels. First, it is more difficult to assess the risk of an investment project. Inflation makes it difficult to differentiate between a change in prices for a good or service and a change in the overall price level. It makes it more difficult to determine the discount rate to be applied. Second, fluctuations in the inflation rate are often accompanied by interest rate variations. A sharp rise in interest rates can also result in substantial losses on financial assets such as bonds and equity. Loans that have been granted against collateral in the form of such assets are even more exposed to losses. When rising inflation and inflationary expectations necessitate a tightening of monetary policy a crisis often ensues. In several countries the financial system has been on the verge of collapse during such a period of adjustment. This was the case in the US in the early 1980s and in the Nordic countries around 1990. Financial stability primarily contributes to price and exchange rate stability by facilitating the use of monetary policy instruments. Unstable institutions and markets constrain the use of interest rates because tighter liquidity and higher interest rates may increase the uncertainty concerning the stability of the financial system. Asset prices are an important linkage between monetary and financial stability. A surge in property prices with a risk of a subsequent fall threaten to undermine banks’ collateral. BIS Review 124/1999  4  5.