Furthermore, central banks have more instruments than just interest rates, as was revealed during and after the financial crisis, and these instruments have some impact on financial stability. The interactions between monetary policy and financial stability are therefore important. The exchange rate and the foreign exchange markets have proven to be more disorderly than theory on the benefits of floating exchange rates has generally admitted. Some market intervention could therefore pay a role in improving outcomes. Of course, this topic is more complex than my broad paintbrush can capture, and at present, there is considerable discussion internationally of how the experience of the financial crisis and its aftermath should affect which policy instruments central banks should use and how, in order to preserve long-term price stability, conduct some short-term output stabilisation, and promote financial stability. The main points that I mentioned earlier concerning the efficacy of monetary policy and its possible objectives remain largely unchallenged by this experience, however. BIS central bankers’ speeches  3  These flaws were also present in Iceland’s economic policy framework. As a result, there was inadequate 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.

Mohammad bin Ibrahim: The development of the Malaysian financial markets Opening remarks by Mr Mohammad bin Ibrahim, Deputy Governor of the Central Bank of Malaysia, at the Persatuan Pasaran Kewangan Malaysia (PPKM) Gala Dinner, Kuala Lumpur, 12 November 2010. *  *  *  Allow me to express my thank you to the organizer, Persatuan Pasaran Kewangan Malaysia, in short PPKM, for inviting me to tonight’s 2010 PPKM Gala Dinner. It gives me great pleasure to deliver the opening remarks. My address will specifically focus on the development of the Malaysian financial markets. The future of the financial markets is of interest to us all here today. I am pleased to note the significant progress that the Persatuan has achieved since its establishment in 1973. It has contributed significantly in representing the interest of the dealer community and in providing feedback and developmental ideas on issues relating to the development of the Malaysian financial markets. PPKM also plays an important role as a bridge to the relevant regulatory authorities. The relationship had been productive to the overall development of our financial market. Indeed, through this cooperation, the Malaysian financial markets have come a long way and have grown steadily in size, breadth and depth over the years. This has received acknowledgement in the recent World Economic Forum’s overall Financial Development Index (the Index refers to three broad areas: Factors, policies and institutions, Financial intermediation and Financial access), where Malaysia is now ranked 17th, up 5 notches from 22nd place previously.