25  And each caused a stretching of the social fabric, often to close to breaking point. It is now well-established that each industrial revolution caused a significant loss of livelihood for workers whose set of tasks was most susceptible to automation. The upshot, often, has been a “hollowing out” of jobs across the skill distribution. 26  Because reskilling and retraining takes time and effort, job displacement  worsens pay prospects for a great many, significantly and persistently. 27  And these losses were often made  worse because they were concentrated occupationally and geographically. 28  A second, accompanying adverse side-effect of technological disruption has often been rising levels of income inequality. Historically, those skilling-up to keep one step ahead of the machine saw demand for 22  Levine and Renelt (1992). Acemoglu and Robinson (2012). 24 North (1990). 25 Haldane (2015b). 26 Katz and Margo (2013), for example, show that skilled blue collar employment in US manufacturing declined while white collar and unskilled manufacturing employment increased. 27 Autor (2017) documents lower relative wages for those in US most exposed to international competition. 28 Autor (2017). 23  8  All speeches are available online at www.bankofengland.co.uk/speeches  8  their skills rise and, with it, their wages. By contrast, those at the other end of the skills distribution saw their incomes fall, due to reduced demand and increased supply of their skills. The resulting rise in income inequality has tended, historically, to heighten popular discontent and worsen social cohesion.

Because it is more economical for business transactions and liabilities to be denominated as far as possible in the same currency, a fundamental change in the position of the króna is unlikely, except directly by an act of government, or indirectly in the highly improbable event that economic policies were to collapse and erode all confidence in the króna, with accompanying hyperinflation, as has happened in some Latin American countries that have adopted the dollar or others that have been forced to adopt another currency. It has sometimes been claimed that the heavy level of external debt means that interest rate decisions by the European Central Bank possibly have even more impact in Iceland than domestic monetary policy. There is nothing new about the impact of foreign interest rate developments being felt in Iceland - and the same applies to other countries as well - although the scale of Iceland’s foreign debt leaves its economy more susceptible to foreign interest rate movements. It is worth remembering that while foreign interest rate developments mostly affect Iceland’s national income, economic cycle and current account balance, they can never have a crucial impact on the domestic rate of inflation. A heavy weight of foreign currency-denominated borrowing in domestic debt may complicate the transmission mechanism of monetary policy. In the long run, however, only domestic monetary policy measures can determine a deteriorating value of the domestic currency vis-à-vis goods and services or to put it plainly, inflation. Prospects Finally, I shall turn to economic and monetary prospects.