They also enable countries to maintain a fixed exchange rate while retaining some flexibility in domestic interest rates. And they might limit the movement of capital to lower taxed jurisdictions, thus slowing the inexorable decline of capital income taxation resulting from the development of a world capital market. But it is difficult to distinguish between controls on capital flows and flows related to trade. The growth of trade in services has highlighted the difficulty of separating currency trade-related flows from those representing investment. Thus, to be effective, capital controls are likely to impede trade flows. This would be a heavy price to pay and few countries have chosen to pay it. Permanent capital controls have other disadvantages. They forsake all the economic benefits of a free capital market. And controls are never implemented by wise, or even merely clever, economists. They attract rent-seeking and corrupt behaviour in both official and private sectors. And they undermine the cause of market liberalisation. There is no shortage of protectionist tendencies that seek to limit trade and investment. We should not add to them. So neither purist solution is likely to appeal – the one because there is insufficient political and financial support for an ILOLR, and the other because permanent controls go against the grain of promoting market reforms and good governance. But the present system is not sustainable. The danger is that we have the worst of both worlds.
Heng Swee Keat: Singapore’s commitment to the development of Islamic finance Opening remarks by Mr Heng Swee Keat, Managing Director of the Monetary Authority of Singapore, at the Singapore Sukuk Signing Ceremony, Singapore, 19 January 2009. *  *  *  Your Excellency Abdulla Hasan Saif, Chairman, The Islamic Bank of Asia, Mr Viswanathan Shankar, Group Management Committee Member, Standard Chartered Bank, Mr Lucien Wong, Managing Partner of Allen and Gledhill, Ladies and Gentlemen, It is my pleasure to welcome you this afternoon to the MAS and to our overseas guests, a warm welcome to Singapore. Singapore is committed to the development of Islamic finance. The financial industry has encouraged us to develop Shariah compliant financial services, by building on our existing strengths in banking, trade finance, capital markets and asset management. MAS is an integrated regulator – we oversee all forms of financial services. In performing this role, we adopt a basic principle that financial products and activities with similar underlying risks are given similar regulatory treatment. However, there are distinctive features of Islamic finance that put it at a disadvantage, if we were to just apply the conventional regulatory framework. We are committed to a level playing field, by ensuring that Islamic financial activities with the same underlying economic essence are accorded the same regulatory treatment as those in conventional finance.