zeti akhtar aziz : islamic finance in a challenging economy – moving forward opening address by dr zeti akhtar aziz, governor of the central bank of malaysia, at the 2nd international shari ’ ah research academy for islamic finance ( isra ) colloquium 2012 “ islamic finance in a challenging economy – moving forward ”, kuala lumpur, 27 november 2012. * * * islamic finance has experienced its most rapid pace of development and growth in this decade, signifying its dynamism and resilience as a form of financial intermediation. this has taken place in a highly challenging international financial and economic environment. it is estimated that the global islamic finance industry will remain on this growth trajectory, with the continued expansion of islamic financial institutions, including in new jurisdictions, and with the growing significance of financial markets in the islamic financial system. increased liberalisation and greater foreign participation in the islamic financial markets are reinforcing this trend and resulting in increased cross border financial flows. this is contributing to increased international financial and economic linkages between nations, particularly among emerging economies. during the recent global financial crisis and its aftermath, the international financial system has experienced a series of unprecedented financial meltdowns and disruptions. during this period, the islamic financial industry has generally weathered these challenging financial and economic conditions. in relation to this, islamic finance highlights the importance of basic banking and the need to have a clear separation from higher risk - taking activities. it therefore has limited exposure to highly leveraged activities, such as complex derivatives and structured credit instruments. indeed, islamic finance emphasises a close link between financial transactions and real economic activity. islamic finance thus serves the real economy. the recent financial crisis has therefore led to a greater appreciation on the distinct nature of islamic finance in addition to its explicit in - built strengths that supports financial stability. these foundations have been reinforced by the global efforts taken to strengthen the international financial architecture of islamic finance to safeguard financial stability and thus its sustainability. in the recent years, the intermediaries have also gained scale and the financial markets have gained depth and maturity. among the institutional arrangements in the international islamic financial system, is the establishment of the islamic financial services board in 2002 to set prudential standards while earlier in 1990, the accounting and auditing organisation for islamic financial institutions ( aaoifi ) was established to set the accounting standards for the financial industry. various jurisdictions have now undertaken legal and regulatory reforms to pave the way for the offering of islamic finance

’, speech to the uwe bristol webinar, 11 january, and l brandao - marques, m casiraghi, rg gelos, g kamber and r meeks ( 2021 ), ‘ negative interest rates : taking stock of the experience so far ’, imf departmental paper no 2021 / 003. see ‘ the framework for monetary policy implementation in australia ’, rba bulletin, june 2019. available at < https : / / www. rba. gov. au / publications / bulletin / 2019 / jun / the - framework - for - monetary - policy - implementation - in - https : / / www. rba. gov. au / speeches / 2021 / sp - dg - 2021 - 05 - 06. html 25 / 26 5 / 6 / 2021 monetary policy during covid | speeches | rba australia. html > the large amount of deposits is a direct consequence of the rba's policy actions. there is little the banking system can do to reduce these deposits. note that there are relatively few bond lines in australia given the low level of government debt historically. there are no more than one or two lines per annum. interest rate swaps are hedging instruments used by banks and corporations to convert fixed - rate interest rate exposures to floating - rate exposures, and vice versa. the ‘ swap rate ’ is the fixed - rate that one party to a swap will pay, versus receiving a floating 3 - or 6 - month bbsw rate. as such, the swap rate can be interpreted as an expectation for the average short - term bbsw rate over the life of the swap contract. the market has almost no expectation that the cash rate will decline any further. this asymmetry in the distribution of expectations is also reflected in both the ois curve and the swap curve. these curves reflect average expected short - term interest rate outcomes as well as the risk - preferences of investors, which are not necessarily the same as the most likely outcome ( the modal outcome ). see : < https : / / www. rba. gov. au / mkt - operations / government - bond - purchases. html > the government, through the australian office of financial management, will have already prefunded the bond maturity by issuing more bonds to the public. so while on the actual day the bond matures, government deposits at the rba will decline, in net terms, it is es balances that move up