Repeated crises and poor support from inflation expectations did not give good results in terms of production growth and real wages. The experiences of the past 10-15 years have been good, however. Fiscal and monetary policy have laid the foundations for better economic growth and wage formation has improved. The social partners have actively contributed to this good development. The results are positive. Growth has been high and real wages have risen, despite the moderate increases in nominal wages. It is of course extremely important that this positive development can continue over the coming years. The economic conditions for next year’s wage bargaining rounds are good and there thus is every reason to believe that wage formation will continue to function well. However, we will of course closely follow developments. The contribution that the Riksbank can make is to conduct a monetary policy aimed at ensuring that inflation and inflation expectations develop in accordance with our target. This in turn means that the social partners can continue to sign agreements based on the assumption that the inflation target will be met a couple of years ahead. Judging from the surveys we make of inflation expectations, monetary policy in this respect has a very high level of credibility. It is the task of myself and my colleagues on the Executive Board to ensure that this remains the case. 4  BIS Review 93/2006  1. Inflation differential rel.
In Islamic finance, financial innovation must be tested against the “Maqasid al-Shariah” (objectives of the Shariah), where the primary objective is the realisation of benefit to the people. This demands the internalisation of Shariah principles in Islamic financial transactions, both in form and substance. Indeed, the move to embrace Shariah-based innovation brings with it a strong Shariah-compliant culture in Islamic financial institutions. This in turn serves to ensure that the product development process in Islamic finance is grounded within Shariah injunctions which also incorporates ethical value propositions. Financial innovation also needs to be supported by robust risk management and strong governance practices. It is recognised that sophisticated and complex financial structures  2  BIS Review 123/2009  very often result in the failure of consumers, investors and even regulators to understand the risks and leverages embedded in the instruments which in turn results in the lack of transparency and inadequate risk management. In Islamic finance, a prerequisite under the risk-sharing arrangements is having the necessary information to understand the risks that are to be borne by Islamic financial institutions. The explicit risk sharing element between the financier and customer in Islamic finance obligates its participants to evaluate risk profile of the product or investment proposition, the underlying trends in earnings and cash flows, and its income-producing potential. This process also allows the pricing of funds to be adjusted accordingly. Equally important is the risk management capability of the Islamic financial institution to manage the risks that are peculiar to Islamic financial transactions.