##udential regulatory design has been complemented by concurrent efforts to develop islamic financial markets, the islamic institutions and the financial instruments. allow me to highlight the key areas that are important to this objective. first, effective regulatory and supervisory framework the hallmark of a well - developed financial infrastructure is an effective legal, regulatory and supervisory framework which would underpin the stability of the financial system. the regulatory and supervisory function is an indispensable and vital component of the financial infrastructure. for the islamic financial system, this framework also needs to be consistent with the requirements of the shariah principles, including the establishment of a shariah council, which provide assurance that the strategic direction, the formulation of policies and the conduct of financial transactions are in compliance with the shariah principles. this would need to be supported by an efficient court system that can effectively deal with all islamic banking and finance cases, whose decisions are enforceable over the range of financial issues such as contracts, bankruptcy, collateral and loan recovery all of which are essential for businesses to operate. the legal framework should also deal with supervisory issues, including the relevant regulatory agencies involved in the supervision of islamic financial institutions and encompass the licensing and conduct of islamic banking business. the relevant agencies should have clear responsibilities and objectives to ensure effective financial supervision. while the conventional banking system is guided by the basel core principles which outlines the minimum requirements for the supervisory regime, these principles need to be reviewed from the perspective of islamic banking, taking into account the unique characteristics and risks involved in islamic banking and its products and services. a fundamental issue is the setting of prudent and appropriate minimum capital adequacy requirements for islamic banks. such requirements need to reflect the risks that the banks undertake. the framework devised would need to incorporate fundamental islamic concepts. the principle of mudharabah, for example, creates a class of depositors that can also be construed as quasi - shareholders. similarly, risk weights assigned to individual asset components need to reflect the nature of inherent risks involved. it is not as straightforward as a debtor - creditor relationship in conventional banking but also needs to include other inherent risks arising from the investor - entrepreneur relationship that is inherent in islamic banking. islamic banking operations therefore need to be governed by its own standards and best practices in parallel with the international best practice. the establishment of the islamic financial services board ( ifsb ) in 2002 as an international prudential standard - setting body to promulgate the international regulatory and supervisory standards for

had been in place since the 1930s. in 1995 the world trade organization ( wto ) replaced the gatt, providing the world economy with a negotiation forum where countries could address trade issues under the aegis of an agreed system of rules and a mechanism for solving trade disputes peacefully. around the turn of the century, we entered a phase of globalisation “ on steroids ” [ 5 ] marked by a considerable increase in trade ( chart 1 ) and the integration of india and china into the world economy. chart 1 developments in world trade since the 1870s ( exports plus imports as a percentage of gdp ) sources : based on klasing, m. j. and milionis, p. ( 2014 ), “ quantifying the evolution of world trade, 1870 – 1949 ”, journal of international economics, vol. 92, no 1, january, pp. 185 - 197, and ecb staff calculations. notes : trade shares correspond to the sum of exports plus imports ( from barbieri, k., keshk, o. and pollins, b. m. ( 2009 ), “ trading data : evaluating our assumptions and coding rules ”, conflict management and peace science, vol. 26, no 5, november, pp. 471 - 491 ) over the reported estimated aggregate gdp. estimated levels of aggregate gdp for 70 countries expressed in current - price us dollars and not adjusted for purchasing power differences. this globalisation boom has had positive effects for the global economy overall, [ 6 ] as the reduction in tariff and non - tariff barriers [ 7 ] fostered trade, job creation, innovation and growth. the increasing participation in international trade has allowed emerging market economies to reduce the technology gap, improve institutional capacity and promote the accumulation of physical and human capital. the eu has been a major contributor to the open trade system, achieving high levels of economic integration with the rest of the world. trade flows between the euro area and the rest of the world reached 54 % of euro area output in 2021, compared with 26 % in the case of the united states. regional and global integration has given the euro area an advantage over other advanced economies : by enhancing country specialisation and input sourcing possibilities, it has supported competitiveness and export market shares. but the eu ’ s reliance on exports was not complemented by adequate domestic investment and homegrown innovation. and the current circumstances highlight the significant risks of relying excessively on foreign demand as a growth engine. it can distract