The central bank monitors not only the absolute value of forex reserves, but also the derived indicators: foreign currency reserves expressed in months of imports of goods and services and the ratio of forex reserves to short-term debt remained unchanged or improved (Chart 8). Chart 8  Foreign exchange reserves with the NBR: derived indicators months  10 8  times official foreign exchange reserves - months of goodsand-services imports official foreign exchange reserves/ST external debt (right-side scale)  10 8  6  6  4  4  2  2  0 0 Jan.05 Jul.05 Jan.06 Jul.06 Jan.07 Jul.07 Jan.08 Jul.08 Jan.09 Jul.09 Source: National Bank of Romania, National Institute of Statistics  Thirdly, the magnitude and the timing of forex market interventions were also related to money market liquidity management, given that public deficit was financed, over certain periods, by resorting chiefly to the funds released under the arrangement signed with the EU, the IMF and other international financial institutions. The NBR provided banks with liquidity  12  BIS Review 5/2010  by way of open-market operations (Chart 9), while in the prior years, amid excess liquidity due to massive capital inflows, the central bank held the position of a net debtor position visà-vis the banking system. The rationale behind the forex market intervention in the abovementioned context was the attempt to fend off temporary reversals in the NBR’s creditor position vis-à-vis the banking system, which could have jeopardised the monetary policy transmission mechanism.
This also provides the foundation for a long-term trust-based relationship, and a clear interest for the financial institutions to undertake the appropriate due diligence to ensure that the returns are commensurate with the risks being assumed. Aspects of governance and risk management thus strongly underpin these contracts. In particular, such contracts demand higher standards of disclosure and transparency to be observed, which in turn act to strengthen market discipline. The legal, regulatory and supervisory framework will need to be adjusted to accord greater clarity to the appropriate legal and regulatory treatment in order to foster the sound and orderly growth of risk-sharing structures and activities, both in terms of the funding and the assets-side of Islamic banks. In Malaysia, steps are currently being taken to provide a conducive enabling environment for this next phase of development that will spur more risksharing transactions though the formulation of new legislation for Islamic banking and takaful. This legislation is now at the final stages of the process of its enactment. This new law for the industry is aimed at promoting certainty to the legal and regulatory treatment of Islamic financial transactions by providing legal recognition to the contractual requirements in accordance with the Shariah.