continue to do so in the years ahead. still, there are many unknown factors in this financial sector, as new types of islamic finance transactions have evolved relatively recently. for instance, how does arbitrage between islamic finance transactions and conventional financial transactions take place? with greater presence in the global market, what kind of impact will islamic finance have on the pricing mechanism in the global financial market? the size of cross - border capital flows generated from islamic finance products is growing. how will this impact the stability of the global financial system? i have expressed my view that diversity in the market will bring about stability. however, the rapidly growing modern islamic finance industry has never been exposed to serious stress in the global financial market. stress tolerance can only be acquired through the experience of riding out numerous crises in the financial market and financial system. in this regard, i would like to watch closely developments in islamic finance in the coming years. one of the potential vulnerabilities in the international financial system is the global imbalance problem. there is a huge gap between the deficit in the us current account, and the surplus in the current accounts of asian countries and oil producing countries. the gap has been filled by the smooth flow of a significant amount of capital. in this context, understanding the flow of islamic finance capital originating from oil money has certainly become the key when considering sustainability of the current state of the global economy. on the regulatory front, there are ongoing discussions on how to develop risk management and a regulatory framework to match the rapid expansion of the islamic finance industry in order to maintain stability of the financial system. the key to addressing this issue would be consistency with conventional risk management and regulatory frameworks. this is a matter of great importance for the coexistence of the islamic financial system with conventional financial markets and systems, and for providing beneficial diversity to the global financial system. islamic financial standard setting organizations play an important role in bridging the gap between islamic standards and conventional global standards. such organizations include the ifsb, of which governor zeti served as chairperson last year, and the accounting and auditing organization for islamic financial institutions, which sets accounting standards for islamic finance. to give a few examples, the ifsb has issued the capital adequacy standard and guidance that complement existing global standards for islamic banks. exposure drafts of guiding principles for islamic collective investment scheme and islamic insurance, or takaful, will follow. i look forward to the significant role that these islamic financial standard setting organizations

more modern version – keeping up with the kardashians, a notion that is apparently even more important today in a highly globalised world with a free flow of information. if the joneses or the kardashians are getting a new mercedes, people are bound to like something similar even though just two decades ago they were driving ladas or trabants or polski fiat. so despite the progress achieved so far, citizens will continue to want more. and why shouldn't they? converging to what? since the eu stopped converging, and actually diverged, from the us in mid 1990s the question is should the goal be to converge towards the eu style labour, product and financial markets, or maybe more efficient ones? converging towards the structures that are themselves underperforming might not be a right choice. for example, integration of the cee banking markets with the west european ones through entry of banks into the cee region at an early stage of the transition has certainly being beneficial in bringing better technology and banking culture, as well as facilitating the transfer of capital. however, today, when it is clear that bank - based systems are inferior to more capital market - based ones, and when loan - to - deposit ratios are close to one, the goal should probably be to turn towards developing more efficient structures of the financial markets. how should we, as policymakers, react to this? what are the next steps that we have to take? how much do we know? well, we know that when it comes to standards of living, in the long - run it is all about labour productivity. and labour productivity, in turn, depends on the amount of capital per unit of labour and something that we call total factor productivity ( tfp ) or multifactor productivity. the problem is that both of these components are hard, or impossible, to measure, so we have to estimate them, and that is by no means an easy task. much has been said about the tfp growth in the context of the discussions on the slowdown in the productivity growth, or discussions of the convergence in europe. however, if you try to decompose the data that are used in these discussions, i believe that you'll come to realise that there are serious measurement issues. for example, it is hard to believe that there has been almost no increase in capital stock per worker in romania and at the same time, the country managed to increase its t