samchain/econo-pairs-v1 huggingface dataset:
Zeti Akhtar Aziz: Growing significance of Islamic finance Opening remarks by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Malaysian Islamic Finance 2008 Issuers and Investors Forum – ISSUER'S DAY (Launch of the MIFC Global Communications campaign), Kuala Lumpur, 11 August 2008. *  *  *  Bismillahir Rahmanir Rahim It is my pleasure to be here this morning at this third Malaysian Islamic Finance (MIF) 2008 Issuers and Investors Forum. It was at the first MIF Forum in August 2006 that the Malaysia International Islamic Financial Centre or MIFC initiative was launched. This was part of our efforts to strengthen further our economic and financial linkages with the rest of the world. It is our firm conviction that as an international Islamic financial hub this will be an important element facilitating the realisation of this aspiration. Since our launch, other traditional financial centres such as Hong Kong, Singapore, Dubai and London have also intensified their participation in the Islamic financial system. As one of the fastest growing segments in the international financial system, there is a growing number of Islamic financial institutions and an increasing range of innovative Islamic financial products. Of importance is that this progress has been supported by a rigorous and well developed legal, regulatory and Shariah framework, thereby ensuring its stability and sustainability. The operating environment for Islamic finance With the internationalisation of Islamic finance and the rapidly changing international Islamic financial landscape, Islamic finance is becoming increasingly integrated to the international financial system.

In order to properly understand what happened, we must consider the gradual shift that occurred in expectations and in economic policy during the post-war period. The thinking at the beginning of that period was still marked by the interwar period’s mass unemployment but also by the price stability of that time. Prices fell during some periods and rose during others. On the whole, the price level was stable during the 1930s, which was also the Riksbank’s explicit target at the time. Inflation expectations during the first post-war period were marked by these experiences, even to such an extent that the government prior to the post-war period announced in advance that the price level would fall as the productivity gains from the transition to peacetime production materialised. As the general price level actually rose, but never dropped, the public’s expectations of inflation were influenced accordingly. Expectations of rising prices worked their way slowly into people’s minds. During the period 1956-64, the general level of prices increased on average by 3.4 per cent a year; during the period 1965-74 by 5.6 per cent and from the mid-1970s to the mid-1990s by an average of 8.1 per cent a year. Between 1973 and 1982, Sweden devalued the krona six times after the Bretton Woods system, with its fixed exchange rates, had been abandoned. By the end of the 1980s, following successive increases in the inflation rate and repeated devaluations, inflation expectations had been anchored at a high level.
The performance of Swedish two-year forward rates since the early summer illustrates this, see Figure 1. We can see that two-year forward rates, adjusted for a risk premium 3 , at the beginning of the summer were at approximately the same level as the money market agents’ two-year reporate expectations according to Prospera. Subsequently, however, there was a clear downward trend and from early June to mid-September the two-year forward rate fell by approximately 80 basis points. In my opinion, a substantial downward shift in monetary policy  3  The forward rates in Figure 1 are adjusted using a constant risk premium of approximately 25 basis points, which is a rough estimate of the average size of the risk premium for this time to maturity. BIS central bankers’ speeches  3  expectations in this period was hardly realistic given the fact that the Swedish economy was, at the same time, surprisingly strong. Later, during the autumn, two-year forward rates increased and were roughly half a percentage point below the expectations in the surveys. An interpretation that I find more likely is that the development of forward rates in Figure 1 mainly reflects an international fall in risk premiums and, as so often in the past, it seems to be the development of interest rates in the United States that sets the tone. On this occasion it was probably the Federal Reserve’s plans to purchase additional long-term assets that had a downward effect on risk premiums.

The conclusion is that however good the decisionmaking material is, it can never be comprehensive or unequivocally interpreted. I have mentioned previously that developments in the financial sector and the effects on the real economy cannot be easily captured. I have also, in connection with the discussion on household borrowing, mentioned how we can assess effects in the longer term. Since we cannot make meaningful forecasts for an unlimited period of time, we must restrict the forecast horizon. But this is not set in stone in the sense that it should prevent us from considering problems that may arise in a few years’ time. Moreover, there are risk scenarios that are difficult to capture in terms of forecasts. Even if your ambition is to base the monetary policy decision on what are termed unbiased forecasts, in which upside and downside risks are balanced, you should be aware of the  10  For a description of how decision-making data for monetary policy decisions are prepared, see the speech “The monetary policy decision-making process” by Irma Rosenberg held on 13 June 2008. BIS central bankers’ speeches  9  difficulties involved. In practice, however, such forecasts have difficulties in capturing everything perfectly. In practice, you may wish to guard against some outcomes that you consider to be particularly harmful and that should therefore be avoided at all costs.
For instance, the work by Cúrdia and Woodford (2010) has provided an important advancement by introducing central bank balance sheet considerations into the New-Keynesian framework. Corsetti et al. (2012) complemented this with interlinkages between the sovereign and the real economy. Moreover, many new modelling approaches now account for liquidity and credit constraints in macroeconomic models. 9 Still, the links and the channels between the financial sector, the real economy and their ultimate impact on output and inflation still leaves many questions open. This is for central bankers and academics to work on in the years to come. Second, as you know, our two-pillar monetary policy strategy foresees that we take into account monetary and credit developments – particularly to ensure a medium- to long-run orientation. Over time monetary analysis at the ECB has been continuously refined and deepened. In the crisis it was crucial to better gauge short-term risks from financial flows and imbalances. And also in the future, its scope and methodology needs to be kept continuously updated. In particular, the analysis should encompass not only a detailed understanding of banks’ behaviour, but also developments in the shadow banking sector as provider of private sector liquidity. 10 In order to conduct these types of analyses detailed data on financial intermediaries and their transactions is crucial. And third, a flexible framework to implement monetary policy has allowed us to react swiftly to the instabilities during the crisis.

During the past three decades, the  2  BIS Review 85/2006  Swiss franc has been an essential factor in the development of the Swiss economy. However, it has never been a reason for our exporters to sit back and relax. On the contrary, the Swiss franc has put pressure on them to become more efficient and to specialise in those product areas in which we have a real competitive edge. Consumers have also profited from the strong Swiss franc in that the prices of imported goods have fallen significantly. A currency that is accurately priced enables the economy to benefit from improvements in its terms of trade triggered by productivity increases. That is why Switzerland is a firm believer in flexible exchange rates. Another advantage of a flexible Swiss franc is that changes in the international monetary system have little bearing on our currency, which is largely determined by economic realities in Switzerland. Consequently, the launch of the euro in 1999 – probably the most important event on the monetary scene in recent years – did not lead to the disappearance or the destabilisation of the franc as feared by some. Though the euro – to all intents and purposes – is accepted as a means of payment in Switzerland, there are not more euros in circulation now than there were French francs, German marks or Italian liras prior to monetary integration.
Sentiments in the foreign exchange market may induce market participants to be excessively positive to a currency for a time while at other times they are overly negative. This may lead to unnecessary and wide swings in the exchange rate, which may spill over into other parts of the economy. Low and stable inflation will also strengthen expectations of stability in the krone exchange rate over time. However, we must be prepared for fluctuations in the krone. Norges Bank's reaction to a change in the exchange rate will depend on its assessment of the effect on inflation. The reasons for the change must be assessed, as well as how long the change is expected to persist. Evidence suggests that short-term fluctuations in the krone exchange rate have little impact on inflation. When the changes are potentially more permanent and thus may be assumed to have a greater impact on inflation, the Bank will set the interest rate with a view to stabilising inflation. However, it is difficult to establish whether exchange rate fluctuations are permanent or temporary. As a rule, Norges Bank will thus be cautious about responding with interest rate changes to movements in the exchange rate. A special situation arises if strong turbulence in the foreign exchange market indicates that confidence in monetary policy is in jeopardy. It may then be appropriate with a marked change in the key rate. In addition to the interest rate, exchange market interventions are a possible monetary policy instrument.

Let me point out first that neither the potential growth rate, resource utilisation nor the inflation propensity in a wide sense is something that can be measured directly. For some years now the Riksbank has been drawing attention to questions of this type, analysing them and presenting detailed accounts in the Inflation Report. Although we have mainly referred to various supply shocks as explanations for inflation’s relatively high rate in the past year, we have also drawn attention to other conceivable factors right from the start. In the Inflation Report last May, for example, we wrote: The risks for inflation connected with domestic demand and the relationship between growth and inflation in Sweden are somewhat more on the upside than foreseen in the March Report. The inflation forecast in the main scenario has admittedly been revised upwards in view of the unexpectedly high domestic inflation but this has been done mainly for the coming year. It is conceivable that the higher registered inflation is partly a sign that resource utilisation is more strained than assumed in the main scenario. (Inflation Report 2001:2, pp. 24–25) Some upward revision of resource utilisation is incorporated in the Inflation Report the Riksbank is presenting today. That was done partly because the underlying rate of price and wage increases has been moving gradually upwards for a time. This resembles our response, though with the opposite sign, when inflation repeatedly turned out to be a positive surprise in the late 1990s.
Estimations for 2015 and 2016 based on available information from listed companies (FECU), Capital Goods corporation surveys, Chilean Chamber of Construction and National Accounts by institutional sector. For 2017 and 2018, Central Bank projection models and sectoral sources are used, including investment plans and Capital Goods Corporation surveys. Source: Central Bank of Chile. 4  10. The labor market continues to gradually adjust and runs the risk of becoming a drag on consumption. Wage employment declined by 2% annually in the moving quarter ending February, and annual wage growth moderated. In addition, working hours declined due to demand rather than supply reasons. Yet this has not translated into an increase in open unemployment, due to flexibility in the Chilean labor market: the unemployment rate is still low from an historic perspective. In fact, despite being more precarious, self-employment has acted as a significant buffer to the loss of dynamism in wage employment (Figure 6).

However, the same Central Bank analysis indicates that reallocating resources beyond the shorter term, recovering the historical investment/GDP ratios and resuming the increase of participation rates of women in the labor force could allow the country to attain trend growth of about 3.5% per year. This suggests that the Chilean economy still has considerably headroom to grow. The challenges 24. Speeding up growth with price stability in Chile still faces some important challenges. First and foremost, closing the current output gap would require recovering productive investment that has remained particularly weak over the last four years. Part of this is due to a substantial drop in investment in the mining sector, but gross capital formation in sectors other than mining has also faltered. While recent data points towards an increase in machinery imports, a more substantial change would require an improvement in business expectations that have remained in negative territory for some time. 25. The possibility of raising potential growth beyond the figures quoted above relies mainly on: (1) increasing human capital accumulation through increased labor participation, raising working skills above the already projected levels or the migration of workers with the competences required by the Chilean system; and (2) making productivity improvements via enhancing companies’ efficiency, lowering production and trading costs, and changing output composition toward more competitive and productive sectors, while advancing in terms of innovation and technological development. 26.
When public sector balance sheets reached their limits, it was the turn of deleveraging at a national level through fiscal consolidation, a process which is likely to continue for some time to come in the UK and euro area. It would be overly pessimistic to have as one’s central case that the headwinds currently affecting the economy will persist for decades to come. Although they will be persistent, they will not be permanent. Indeed there are now nascent signs that some of these headwinds have already begun to ease. For example, against a backdrop of improved confidence in the recovery (Chart 5), firms have slowly but surely been increasing the amount they invest relative to the amount they save (Chart 6). And household saving has also declined from its very elevated precautionary levels. But that is not to say that it is imprudent of financial markets to attach weight to the downside risks – they are real. Indeed, reducing the probability of those risks materialising has been a driving factor in the MPC’s decision to maintain Bank Rate at its historically low level of 0.5% for 6 years, and the committee’s guidance that when Bank Rate does begin to rise, it is expected to do so more gradually than in previous cycles, and is expected to remain below average historical levels for some time to come. 4. Diminished potential output growth  Let me turn next to potential output growth.

The projections for the key rate, inflation, output and other variables are based on our assessment of the economic situation and our perception of the functioning of the economy and monetary policy. If economic developments are broadly in line with our projections,  5  See Staff Memo 2008/3 from Norges Bank. BIS Review 37/2009  13  economic agents can expect that the interest rate path will also be approximately in line with that projected. On the other hand, the interest rate path may shift if the economic prospects change, or if the effect of interest rate changes on inflation, output and employment differs from that assumed. In the Monetary Policy Report, we present two alternative scenarios where demand is higher or lower than presented in the baseline scenario. The yellow lines in the chart illustrate a scenario where growth in private consumption is stronger than expected and the turnaround occurs more rapidly. In this scenario, interest rates may decrease to a lesser extent and move up more quickly. The red lines in the chart illustrate a scenario where the global downturn is deeper and more prolonged, with more pronounced effects than assumed. It will then be appropriate to set a lower interest rate in order to stimulate the economy and thereby prevent inflation from becoming too low. The primary effect of a key rate close to zero will probably come via a weaker krone. It will then be appropriate to consider instruments other than the interest rate.
•  Principle 2: The board of directors should approve and oversee the bank’s strategic objectives and corporate values that are communicated throughout the banking organization. •  Principle 3: The board of directors should set and enforce clear lines of responsibility and accountability through the organization. •  Principle 4: The board should ensure that there is appropriate oversight by senior management consistent with board policy. •  Principle 5: The board and senior management should effectively utilize the work conducted by the internal audit function, external auditors, and internal control functions. •  Principle 6: The board should ensure that compensation policies and practices are consistent with the bank’s corporate culture, long-term objectives and strategy, and control environment. •  Principle 7: The bank should be governed in a transparent manner. 4  BIS Review 24/2007  •  Principle 8: The board and senior management should understand the bank’s operational structure, including where the bank operates in jurisdictions, those that may impede transparency (i.e. “know-your-structure”). It is very clear today, more than ever, that Regulators also have a key role to play in achieving good Corporate Governance. In general, all regulations, in the Banking System, are intended in one way or another, to enforce prudential requirements on key areas of affairs of institutions to mitigate identified risks. Regulations on ownership, related party transactions, fitness and propriety tests for directors are directly based on modern Corporate Governance principles.

Stress testing consists of assessing the attributes of a portfolio, assessing the scenarios that are likely to occur and calculating the stress loss should a crisis come to pass. With a rigorous stress-testing programme, a bank can alter the composition of its portfolio, if preset stress loss limits are exceeded during stress tests, thereby limiting its losses should a stressful event actually occur. Stress tests are fairly common for market portfolios but are still not widely used to assess stress loss of credit portfolios, particularly, loan portfolios. We are releasing on our website today a consultative paper on credit portfolio stress testing. The paper will be further developed with your inputs before we release it as a formal MAS guideline. We invite you to send in your comments by May 2002. In the coming months, financial institutions in Singapore can also expect to receive the MAS risk management guidelines for market risk, credit risk and liquidity risk management. These guidelines will spell out the key principles for sound risk management which banks are encouraged to follow. Improvements made to risk management in order to comply with these risk management guidelines will help banks develop prudent and understandable policies, and improve their methods for measuring and managing firm-wide risks. These guidelines will incorporate comments from industry practitioners and other experts in the field of risk management. Next, there will be a significant addition to Singapore’s risk management infrastructure.
You know people talk about, well, it’s hard to know where to operate in a gray area, I think a lot of the behavior was way over the line. When people are getting together in chat rooms trying to talk about how they can collude to rig a market, that’s not in the gray area. That’s way over the line. When people are consciously doing things to evade any money laundering rules and sanctions, that’s not in a gray area, that’s way over the line. So I feel that most of the things that have resulted in fines can be tied to things that are not in a gray area. They’re just way over the line. Now the question of whether the fines are excessive – I mean it’s hard to know how you take the behavior and then map it back onto the fine. I think the important thing, though, is to make the fines big enough so that the senior management of these institutions doesn’t just say, “Well, I can just write a check, accept the bad behavior, and move on." If the fines are substantial, then it actually gets some senior management’s attention, and I think that’s one of the reasons why banks are working harder on the issues of culture in their institutions. I’ve actually been very – you know, you asked me the question, is bank bad behavior over?

And second, as immigrants are much more mobile than natives – both across and within borders – labour supply becomes more responsive to changes in economic conditions. This helps reduce labour market tightness in the presence of positive demand shocks, and softens upward wage and price adjustments. Therefore, the higher mobility of immigrants across countries, sectors and occupations gives a better output-inflation trade-off. In other words, we can sustain bigger and longer-lasting expansions with more moderate effects on inflation. But the cross-border mobility of immigrants is greatly affected by how strict the receiving country’s immigration policies are. Immigrants will return home more willingly, or move temporarily to an alternative destination, when re-entry is easier. Governments should take this into account when designing immigration policies, and co-ordination among European countries in this area also needs to be stepped up. I believe that cross-country labour mobility brings sizeable benefits for global economic prosperity. But high immigration also poses many challenges, not least the social assimilation of the new foreign residents. Here we need effective policies to hold the rate of immigration at the right level. There is little doubt that immigration cannot carry on increasing indefinitely at high rates. And we must not forget that the favourable effects on inflation may gradually fall off as inward flows of foreign workers diminish. As immigrants are more willing to substitute consumption for leisure, we might expect their participation rates and the number of hours they wish to work to be higher than those of the native population.