Many economies have embarked on financial-sector reform, with the aim both of ensuring that the banking system is well capitalised and of promoting other forms of intermediation. Central banks have seen a strengthening of their capabilities and a clarification of their policies and roles. Most heartening of all, co-operation among central banks in the region has flourished. Many examples could be cited, from bilateral swap agreements to payment system linkages. 1  Zeti Akhtar Aziz: "Enhancing the Resilience and Stability of the Islamic Financial System": Governor's Keynote Address at the Islamic Financial Services Board and Institute of International Finance Conference, Kuala Lumpur, 20 November 2008. 2  BIS Review 12/2009  At the centre of this regional co-operation has been the work of EMEAP in facilitating practical co-operation in all areas of central bank activity, and particularly in surveillance and crisis management. I should add that these activities have benefited enormously from the wisdom and leadership of Governor Zeti and her colleagues. The Zeti Taskforce – the EMEAP taskforce on Regional Financial Co-operation – has laid out a comprehensive framework for enhancing central bank co-operation, which has been adopted by EMEAP as a blueprint for action. Calls were also made in the aftermath of the Asian financial crisis for a reform of the global financial architecture. Yet one of the great disappointments from those years, particularly when set against the real progress in regional co-operation, was the general absence of concrete measures on an international scale.
As Governor Zeti has persuasively argued, Islamic finance encourages business activities that generate legitimate profits, and rests on principles of fairness, shared risk and ethical practices.1 There is, I think, much for us all to reflect on in this when considering how badly things have gone wrong recently in what might be called "traditional" finance. No institution with such a long history can have escaped controversy, and BNM has had its fair share. What is interesting, however, is that perhaps the most controversial action by the Malaysian authorities in recent years – the response to the 1997-8 Asian financial crisis – has now come to be understood as appropriate and effective. At the centre of this response was the imposition of capital controls to contain speculative capital flows, stabilise the ringgit, and give the economy a breathing space. This was widely criticised internationally as a retrograde step. Yet it was a limited and temporary measure, which, along with other policies succeeded in stabilising the system and providing the conditions for economic recovery. The role of Bank Negara in promoting international understanding of this measure was crucial to its effectiveness. It is not, of course, my purpose to recommend capital controls as a general solution to financial crisis. The lesson here is that unorthodox measures can be effective, provided that they are well thought out and properly implemented.