One explanation is that holding cash is associated with cost and inconvenience and there is therefore a willingness to accept a certain cost to avoid doing so. But an e-krona would change the prerequisites. In contrast to physical cash, the e-krona would not require agents to invest in ways of storing, transporting and insuring. This means that the lower bound for the policy rate would increase, probably to zero, that is, where it was previously assumed to be. In this sense, the e-krona could restrict monetary policy and make it less effective. The situation would be entirely different if the e-krona was to be interest-bearing. The zero bound would then no longer constitute a restriction as the yield of the ekrona itself could be negative. Furthermore, if physical cash were to be entirely phased out, the policy rate could instead be taken much further into negative territory than today. 26 Potentially, therefore, monetary policy would become more effective, even though it would probably be met by significant resistance from economic agents. This resistance is already substantial to what are currently more modest negative interest rate levels. But with an interest-bearing e-krona, we would also be in a completely different world. The interest rate on the e-krona, for example, would become a new regular monetary policy instrument. Potentially, therefore, it would involve a change on many different levels. However, with the current legislation, it is not clear whether it is even possible for the Riksbank to introduce an interest-bearing ekrona.
In this environment, the foundations for the sustainability for Islamic finance as a competitive form of financial intermediation will need to continue to be strengthened. Efforts are therefore being focussed on the further development of Islamic financial markets, the financial infrastructure, research and development to support innovation, and enhancing the legal, regulatory and supervisory framework. In addition, the adoption of the relevant advances in technology and the development of human capital are also key to support the development of Islamic finance. The ongoing efforts in these areas are aimed towards enhancing further the resilience of Islamic finance which would in turn enhance its potential to contribute towards global financial stability and the prospects for global growth. Indeed, the topic of the INCEIF's Public Lecture today, “Paradigm Change in Shaping the Future of Islamic Finance” is timely for us to deliberate and reflect on the issues confronting Islamic finance moving forward. We are indeed honoured today to have Dr Abbas Mirakhor. Dr Abbas joins INCEIF following a long and distinguished career as an economist and academician with considerable contribution in the field of Islamic economics, finance and banking. Dr Abbas started his academic career in 1968 with University of Alabama, in the United States of America as a Professor of Economics and later at the Florida Institute of Technology. In 1984, he joined the IMF in Washington DC as an economist before serving as the organisation's Executive Director and Dean of its Executive Board. He completed his term at the IMF in 2008.