danish central government that the exchange rate vis - a - vis the danish krone could be maintained. this unlimited guarantee in terms of amount and time would make the regime more credible, unless there was speculation against abolishment of the government guarantee. however, the danish central government cannot be expected to furnish such an unlimited guarantee without gaining some insight into or control over other economic - policy measures implemented under the currency board or by the faroese authorities. in addition, the monetary - policy interest rate would be determined entirely by interest rates in denmark. in practice this scheme would not give the faroe islands any more economic - policy autonomy than the current direct use of the danish krone as their currency. it must be emphasised here that the existence of special faroese banknotes is no indication that the faroe islands today apply a currency board. it would be very difficult for the faroe islands to pursue a conventional fixed - exchange - rate policy since the economy is small and catch volumes and fish prices may fluctuate substantially. in several periods the fixed - exchange - rate policy has been problematic even for iceland, a much larger economy. on several occasions the icelandic krona was devalued considerably. today iceland has abandoned the fixed - exchange - rate policy. a conventional fixed - exchange - rate policy where the authorities seek to stabilise the exchange rate by means of intervention and through interest rates sometimes requires extremely harsh economic measures to safeguard its credibility. denmark ’ s fixed - exchange - rate policy vis - a - vis the euro and previously vis - a - vis the d - mark today enjoys a high degree of credibility. this credibility is founded on denmark ’ s success in maintaining a fixed exchange rate for more than 20 years and willingness to tighten monetary as well as fiscal policy if required to protect the currency against speculative attacks. floating exchange rate a freely floating faroese currency could be subject to very strong fluctuation, again due to the narrow business structure and the fact that the currency would be a small one. like sweden and norway, iceland has opted for a floating - exchange - rate regime where monetary policy is anchored in an inflation target. this model would be difficult for the faroe islands to apply since only a small proportion of the consumer goods are manufactured locally. the direct effect of interest rates on inflation would therefore be limited. interest rates will mainly impact on the economy via the effect on the exchange rate. in an international context, floating exchange rates have generally yielded poor results for

normalisation path, euro area financial conditions remain consistent with continued progress towards our policy objective. finally, our app portfolio and our unconstrained provision of liquidity will continue, for the time being, to provide an accommodative environment. 11 / 12 bis central bankers'speeches i would like to make a final comment on the effects of our app portfolio on bond yields. while, overall, our app portfolio will continue to exert downward pressure on euro area long - term interest rates, other factors such as economic fundamentals and the creditworthiness of issuers, as assessed by market participants, remain key determinants of the levels of bond yields and spreads. conclusion the winding - down of net asset purchases is not tantamount to a withdrawal of monetary policy accommodation. the ongoing rotation from net asset purchases towards enhanced forward guidance on key ecb interest rates has preserved the ample degree of monetary policy accommodation that is necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 % over the medium term. prudence, patience and persistence will continue to inform our policy decisions. the sizeable stock of acquired assets and the associated reinvestments, as well as the strong anchor for policy rate expectations provided by our enhanced forward guidance, will continue to deliver the monetary policy stimulus necessary for inflation convergence. in any event, all our policy instruments can be adjusted to ensure that inflation moves towards our aim in a sustained manner. 1 this speech builds on my remarks at the ubs conference, london, 13 november 2018. 12 / 12 bis central bankers'speeches