The economic purposes of these contracts include hedging or gaining exposure to: outright interest rate risk, basis risk, cross currency risk, and interest rate volatility. Banks, pension funds, insurers and hedge funds are all heavy users of Libor derivatives. Libor is also important for the real economy in the UK, with more than £ of SME and corporate loans, around £ of Floating Rate Notes and £ of structured debt referenced to sterling Libor. Libor’s role here is typically to provide a transparent and widely accepted reference point for the floating interest payments on loans. The dominance of Libor might be taken as evidence of the overwhelming need for Libor-linked financial contracts. However I do not believe this is the case. A large part of the reason Libor is so widely used is due to what economists call network effects. Using Libor is attractive because Libor instruments are liquid. This is self-reinforcing – liquidity drives use of Libor, which drives liquidity. In many cases the use of other benchmarks would be preferable for users. For example, most users of interest rate swaps are seeking to hedge the general level of interest rates, not bank credit risk. For this, near risk-free rates would be more appropriate. However, liquidity for long-dated sterling swaps is firmly rooted in contracts referencing six-month sterling Libor, and individual participants cannot change this.
WIBC Asia provides a valuable platform to bring together stakeholders in Islamic finance, from Asia and the Middle East, to foster stronger collaboration for sustained industry growth. I wish you fruitful discussions. Thank you. 2  BIS central bankers’ speeches