Már Guðmundsson: Monetary policy after capital controls Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the Annual General Meeting of the Confederation of Icelandic Employers, Reykjavík, 7 April 2016. *  *  *  Madame Chairman, honoured guests, In my speech today, I would like to discuss the monetary policy that might be appropriate for Iceland after the broad-based restrictions currently imposed on capital outflows have been lifted. More specifically, I will discuss the monetary policy framework rather than its implementation, which would naturally depend on economic conditions and prospects at any given time. But what is meant by monetary policy? In the modern sense of the term, monetary policy entails applying the Central Bank’s balance sheet and other instruments at the Bank’s disposal so as to affect the economy. In that sense, entering a currency union is not monetary policy; it is currency policy. Only central banks can pursue monetary policy, while governments take decisions on currency policy. In my discussion today, I assume that we will pursue independent monetary policy, at least in the near future. Designing a monetary policy framework entails deciding what its objectives should be, which policy instruments should be applied, how decisions on the application of those instruments should be taken, how these decisions should be communicated, and how accounting for monetary policy after the fact should be handled. Exchange rate policy is naturally an important part of this framework; i.e., whether the exchange rate is pegged, free-floating, or somewhere in between.

With its long history and impressive membership, ACI has developed very much into an icon of professionalism in finance, contributing to "market development through education, market practices, technical advice and networking events for the financial practitioners of the world". The Association therefore has a very important role to play and faces in the coming years much greater challenge than before in promoting and upholding professional and ethical standards in finance. One interesting, perhaps even perplexing, aspect of the current financial turmoil is that emerging markets, particularly those in Asia, have only been lightly affected, so far. One reason is that financial innovation, in the form of credit risk transfer through securitisation by the "originate and distribute" model, has not caught on in Asia to the same extent as in the United States. Indeed, economies in different stages of financial sector development face different issues, notwithstanding the clear trend of globalisation in finance. Correspondingly, in promoting and upholding professionalism in finance, there may be a need for different emphases and approaches, having regard to the different development stages that individual regions and economies are undergoing. But it is also important that these different emphases and approaches should be developed within the framework of global standards. I therefore wholeheartedly support regional outreach initiatives of international standard setting bodies such as the ACI. Asia, of course, is region of rising importance in the global context, particularly in terms of finance.