and ultimately support recovery. in broad terms, these goals have been realised. without the controls, much stricter monetary policy would have been required in the early stages of the crisis. the treasury would have had much less scope to mitigate the contraction in 2009, as domestic financing of the deficit would have been much more expensive. in this context, it is worth noting that, on average, real interest rates on new domestic treasury borrowings were negative by almost half a percentage point in 2009 – 2012. but these stabilisation gains of the capital controls will diminish over time. the capital controls also have efficiency costs associated with them – costs that were probably modest to start with but increase with time. there is little or no research on how high these costs are at present, and assertions to that effect are not well founded. it is still more difficult to make a quantitative assessment of the risk accompanying liberalisation of the controls, which is presumably greater the faster the controls are lifted and as the economy is less prepared for it. from a theoretical standpoint, we should lift the controls the moment the present value of future efficiency costs exceeds the present value of future stabilisation gains, including the risk accompanying speedy liberalisation. that precise moment can never be identified with any certainty, however, although most signs indicate that it has not come yet, for if it had arrived, rapid liberalisation would be underway. at this point, it is likely that the benefits of lifting the controls more gradually are still greater than the cost of retaining them for a little longer. the pivotal issue here is what tools they give us in order to prevent the settlement of the failed banks from jeopardising financial stability. but none of this changes the fact that we must lift the controls as soon as it is safe to do so, both because of the economic cost of retaining them and because of iceland ’ s international obligations. in my speech a year ago, i said that this was one of the most complex tasks facing the icelandic authorities at the time. that has not changed. a prerequisite for success is that we base our efforts on the best possible analysis of the problem and the potential solutions to it. until now, the controls have been viewed as providing shelter during the bis central bankers ’ speeches resolution of the balance of payments problems caused by the collapse of the financial system. if all non - residents ’ potentially volatile claims on residents were paid in a short period of time, iceland would pay down foreign debt

francois villeroy de galhau : five lessons learned for monetary policy from the latest years remarks by mr francois villeroy de galhau, governor of the bank of france, at the paris school of economics, in discussion with olivier blanchard, paris, 28 june 2023. * * * looking at the last three years, which were rich in unexpected events, i would risk two general lessons, and three more technical ones : 1. the first is that we must remain modest, humble : monetary policy is not omnipotent ; it cannot be the only game in town. and we must be nimble, able to react to surprises with agility. 2. that said, monetary policy was efficient in preventing deflation during covid - while not creating the present inflation. 3. on a more technical note : we certainly should work with less forward guidance. i wouldn't throw it away completely but if we use it again in the future, forward guidance should be ( i ) state dependent and not calendar based except in the very short term ( ii ) indicative and not committing. 4. we should keep our inflation target of 2 %. it served us well, explaining in part why inflation expectations remain rather well anchored ; we shouldn't change it, while keeping in mind that the target is for the medium term. 5. transmission lags are a key question, and we should dig more into this issue. in my view, transmission of monetary policy in this cycle is not weaker but slower, for three reasons : the starting point : the balance sheet of corporates as well as of households was very strong after the exceptional covid support ; fixed rate mortgages have significantly increased in share, and are now predominant in many jurisdictions. it's nevertheless good news for financial stability ; the higher proportion of services in the economy, which are less directly sensitive to interest rates. non - housing services now represent 49 % of core hicp basket in the euro area, compared with 41 % in 2001. in a recent speech, 1 i suggested that the lag could be up to two years. hence, " length " is still more important than " level ", to quote the two dimensions mentioned by christine lagarde recently2. we stated in our last monetary policy statement that " the key ecb interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2 % medium term target and will be kept at those levels as long as necessary ".