The run on the domestic banks stopped, but at its peak, demand for cash tripled and the Central Bank almost ran out of banknotes. International payment flows were seriously affected, however, not least because of the freezing order imposed by the British authorities on Icelandic banks, but also because of a general distrust among foreign counterparties. Why did the Government give a verbal blanket guarantee for domestic deposits only and not for deposits in the banks’ foreign branches? After all, this distinction probably added fuel to the fire of the so-called Icesave dispute about the settlement of deposit guarantees in Landsbanki’s Dutch and British branches. The short answer is that such a guarantee would never have been credible. As a result, it would not have stopped the run on these deposits and, if attempted, might have bankrupted the Government. At the time, the Central Bank of Iceland’s FX reserves amounted to 2½ billion euros, while the foreign currency deposits in Landsbanki’s Dutch and British branches totalled 11½ billion euros and payment of the EU minimum deposit insurance would have required 4½ billion euros. The sovereign was completely closed off from foreign capital markets at that point. Furthermore, in economic terms, given that these deposits were used to a significant degree to finance illiquid assets in these same countries, such a payment, if possible, would have amounted to a net transfer of resources from Iceland to these countries at a time when Iceland was going through its deepest financial and economic crisis in the post-war period!

There is an overall consensus that digitalisation can potentially boost firms’ productivity through several channels. First, technical progress in the production of digital products leads to new, better and cheaper products generating productivity gains in the sectors producing these products. Second, other sectors may benefit from cheaper inputs encouraging a higher use of those inputs as investment goods, resulting in productivity gains for the firms in these sectors. Third, digital technologies enhance product and process innovations leading to new production and organisational processes, new business models and new or superior products. Finally, information and communication technologies (ICT) are seen as reducing the cost of sharing and acquiring knowledge, potentially increasing the diffusion of innovation and new knowledge. However, digitalisation may also entail some challenges. First, while some argue that digitalisation leads to more intense competition, others fear increasing market concentration in some sectors on the back of digitalisation2. Second, some studies find evidence that ICT and automation are related to labour market polarisation3, where mid-skilled jobs either lose value or disappear, while there is an increase in demand for high-skilled job-profiles linked to digital technologies. This can lead to more income inequality or at least to big transition  1  Goldfard, Avi and Catherine Tucker (2019). “Digital Economics”, Journal of Economic Literature, vol 57(1), pages 3-43 OECD (2018): “Maintaining competitive conditions in the era of digitalisation”. OECD report to G-20 Finance Ministers and Central Bank Governors. 3 Michaels, G., Natraj, A. and Van Reenen, J. (2014): “Has ICT Polarized Skill Demand?