For instance, it is estimated that about two‐thirds of the outstanding stock of 10‐year treasuries is in private hands.6 It would not be surprising that those private bondholders would become wary of the possible price impact of a reduced demand for these assets by the Fed, and decide to anticipate this move. Dealing with such a situation would be challenging for any authority. In sum, the baseline scenario is one of a gradual reversal with some temporary financial turbulence taking place as markets take notice of the new policy stance. However, a tail event of heightened and persistent financial volatility cannot be written off. Although there is some research estimating the impact of the implementation of QE on key interest rates in the US, it is likely that the impact of the removal of QE will not be the flipside image of its implementation. Let me turn now to the last determinant of the impact of a reversal: what countries do in the meantime. Recent events have shown us that even a gradual normalization of global monetary conditions may not be welcome news for all countries. For various reasons, these conditions have bred more vulnerability in some countries than in others. Those countries that have been running large current‐account deficits, where these deficits have been financed mainly with debt, where fiscal positions are weak, and where capital inflows have bred large expansions in credit, may have already become too dependent on abundant and cheap international funding.

The growing internationalisation and cross-border activities in Islamic finance in recent years further accentuates the importance to enhance the ability of the Islamic financial system to withstand shocks from externalities. Moreover, access to a robust liquidity management infrastructure will reduce the cost of intermediation which is an important enabler for a more efficient and competitive Islamic financial system. Recognising that liquidity management in the Islamic financial system is still under-developed, a Liquidity Task Force was established by the IFSB in 2009 with the aim to formulate an institutional arrangement to address this need. Significant progress has already been made in this endeavor with several key proposals now at the final stage for operationalisation. When operationalised, this liquidity mechanism will be another landmark development for Islamic finance. Conclusion The recent global financial crisis has spurred the resolve of the world community to chart a new course towards greater and lasting social and economic stability with fairness and accountability. Whilst this presents a unique opportunity for Islamic finance to transition into the next development stage of greater international integration, there needs to be a higher level of resilience to withstand the new challenges it will bring. This, in essence, requires the strengthening of the financial infrastructure to preserve the soundness and stability of the Islamic financial system. Indeed, our collective will to mobilise a higher level of global cooperation in promoting this outcome will enhance the prospects of Islamic finance to contribute towards securing global financial stability and a greater shared prosperity. 6  BIS Review 64/2010