Swedish prices and wages continued rising much too fast. The credibility of the exchange rate target had been gradually undermined and finally it was lost completely. In November 1992 the Riksbank was forced, under great drama – with high interest rates and in principle the entire foreign exchange reserve sold on  2  BIS Review 62/2007  forward contracts – to let the krona float. The anchor that was supposed to secure expectations of low and stable inflation had been let go. The seriousness of the situation probably contributed to a broad support for powerful measures needed to bring the Swedish economy onto a better track. The framework for economic policy was in principle redefined from scratch. We were also given a clearer allocation of roles between monetary policy and fiscal policy. Fiscal policy had previously often been overly expansionary and contributed to excessively high inflation. Now it was subjected to requirements for long-term stability and durability in public finances. A floating krona meant that the main task of monetary policy was to directly act to ensure that inflation remained at a low and stable rate. And the change in regime that was later implemented – with an explicit inflation target for monetary policy and a clear regulatory framework for fiscal policy – has gratifyingly made economic policy more long-term and stable. It is difficult with hindsight to say anything other than that inflation targeting with an independent Riksbank has been a success.

At the centre of the reforms have been the Basel III reform package, principles for riskaligned compensation structures and improving the consistency of regulatory regimes across the different parts of the financial system, including the shadow banking institutions. Significant work is also progressing to strengthen resolution regimes and financial safety nets, particularly in a cross-border context. Given the specificities of Islamic financial institutions, the implementation of these reforms require a careful examination of the different implications that they present for individual institutions and the system as a whole. We are now witnessing wave of the internationalisation of Islamic finance as the role of Islamic finance has expanded to become significantly more globalised. This has resulted in domestic Islamic financial systems to become more inter connected and with the consequence that integrated, risks are more rapidly transmitted across the financial system. Building on the foundations that have been put in place with the adoption of prudential standards introduced by the Islamic Financial Services Board (IFSB) in the key areas of capital adequacy, risk management, corporate governance and Shariah governance, the regulatory, supervisory and legal frameworks will need to reflect the growing cross-border dimensions of Islamic finance and its increased connectivity. Of priority will be efforts to strengthen the cross-border regulatory and supervisory cooperation arrangements in the relevant jurisdictions and to strengthen further the international financial infrastructure for Islamic finance. As we advance forward, this will be of great importance to promote stability and confidence in the more challenging international environment.