that the government and others follow specified and appropriate ground rules. if we have had problems running independent monetary policy, it is not necessarily because the policy itself has been wrong. it is far more likely that we have not followed the rules or have not had the right institutional architecture in place. indeed, if we think the history of monetary policy in iceland has been a thorny one, we should remember that we started out with a central bank that effectively didn ’ t exist until 1961, and until 2001 we had a central bank that did not have the independence it needed to apply its policy instruments effectively. and from then until last year, we had a central bank that had been deprived of the authority to intervene in the functioning of the financial system. but the central bank is not alone on the stage. sound economic policy is a triumvirate comprising the central bank, the treasury, and the labor market partners, all of which must work together to keep the economy in balance. these three members of the triumvirate must act in concert in order to ensure stable prices, stable purchasing power, and low interest rates for the long term. we can do this just like other countries can. we will do it. and the central bank will do its part. sixty years of central bank operations should give us a reliable roadmap to the future. we who work for the reunified bank are champing at the bit in our excitement to take on the tasks that await us. now let us watch the video about the design of iceland ’ s banknote series, in commemoration of the 40th anniversary of the redenomination of the icelandic krona. thank you 5 / 5 bis central bankers'speeches

central banks worldwide are considered small, apart from the us federal reserve and the european central bank. 2 / 5 bis central bankers'speeches it is important to bear in mind that the problem is created not only by foreign exchange market instability ; capital inflows can overwhelm the financial system and create credit and asset bubbles like those we saw in iceland in 1998 – 2000, and again in 2004 – 2008. and at some point in time, this capital will want to go back home – sometimes with no advance warning – leaving ruin in its wake. therefore, it should come as no surprise that, in open economies with independent currencies, currency crises and banking crises usually go hand - in - hand in what are called twin crises. helene rey proposed four options to create scope for monetary policy : 1. targeted capital controls, to create space for independent monetary policy without disturbances from abroad ; 2. international coordination of monetary policy, particularly the policy of the fed and other large central banks ; 3. steering monetary policy transmission by applying macroprudential tools in order to control credit growth and leverage ; 4. protecting the financial system with strong financial supervision and stricter limits on leverage, so as to prevent the use of foreign capital for financial gymnastics. in my view, the first two of these are either unfavourable or unfeasible for iceland. capital controls are costly from a social welfare perspective, especially in small countries that are reliant on cross - border trade – be it trade in goods, in services, or in capital. capital controls can also give rise to oligopoly in the financial markets, as well as leading to inefficient price formation and causing persistently high interest rates. imposing capital controls has to be considered the last resort – a line of defence to be reserved for when financial stability is under threat. and after having seen the responses of individual countries to the covid - 19 pandemic, i have little confidence in international coordination of monetary policy. applying macroprudential tools and financial supervision in a system - wide context therefore entails weakening the incentives for short - term capital to flow into the economy, and preventing the capital flows that do occur from upending the system. in this way, we can create stronger foundations for independent monetary policy in small open economies. we need revetments, not restrictions. actually, i do believe that large international reserves and systematic use of the central bank balance sheet can give small economies a certain