yves mersch : prospects of islamic finance – the view of a central bank in europe closing keynote address by mr yves mersch, governor of the central bank of luxembourg, at the islamic finance conference, frankfurt am main, 18 november 2010. * * * ladies and gentlemen, it is my pleasure to talk to an audience of such distinguished financial specialists. before i embark on what islamic finance means for central banking in europe, i will have a look at the growing importance of the phenomenon, its characteristics in the context of financial stability in general and its performance during the financial crisis in particular. finally, i will present the achievements within my own constituency to overcome the obstacles for an accelerated and safe spreading of islamic finance in europe. islamic finance : growing importance the development of modern islamic finance roughly started more than four decades ago. at the very beginning it occupied a small niche visible in islamic countries. in malaysia the pilgrim fund ( tabung haji ) was established in 1969 as an islamic savings institution. more recently islamic finance has expanded out of this niche. worldwide, the assets of islamic finance institution have grown at double - digit rates for a decade. even some conventional banks have embarked into the provision of shari ’ ah compliant financial assets reaching an estimated 509 billion usd at the end of 2007 according to moody ’ s 1. today, there are at least 70 countries that have some sort of islamic financial services. almost without exception, the major multinational banks offer some kind of these services. with the rise of the importance of sovereign wealth funds ( swf ), islamic finance was pushed further. about a decade ago, many emerging countries started to accumulate huge foreign exchange reserves, most of them benefiting from rising oil, gas and other natural resources ’ prices, being supported by favorable macroeconomic policies. with assets under management of an estimated 3, 000 bn usd in 2009, swf represent twice the wealth of hedged funds. muslim countries, oil exporters in particular, account for more than 50 % of all swf ’ s assets – not all of which are islamic finance products, though. while islamic banking remains the main form of islamic finance, islamic insurance companies ( takaful ), mutual funds and islamic bonds ( sukuk ) have witnessed strong global growth. the sukuk markets in particular have gained importance. in recent years, the issuance rose from less than 8 bn usd in 2003 to 50 bn usd by mid - 2007. 2 after a sharp decline during the financial crisis, private

), “ understanding the great recession ”, american economic journal : macroeconomics, vol. 7 ( 1 ), 110 — 167. 21 see gertler, m. and p. karadi ( 2015 ), “ monetary policy surprises, credit costs, and economic activity ”, american economic journal : macroeconomics, pp. 44 – 76. 22 clerc, l., a. derviz, c. mendicino, s. moyen, k. nikolov, l. stracca, j. suarez and a. p. vardoulakis ( 2015 ), “ capital regulation in a macroeconomic model with three layers of default ”, international journal of central banking, pp. 9 - 63. 23 see : blanchard, o. ( 2016 ), “ do dsge models have a future? ”, peterson institute for international economics policy brief 16, 11 august ; blanchard, o. ( 2016 ), “ further thoughts on dsge models ”, peterson institute for international economics realtime economic issues watch, 3 october ; blanchard, o. ( 2017 ), “ the need for different classes of macroeconomic models ”, peterson institute for international economics realtime economic issues watch, 12 january. 6 / 6 bis central bankers'speeches