birgir isl gunnarsson : the policy and objectives of the central bank of iceland article by mr birgir isl gunnarsson, chairman of the board of governors of the central bank of iceland, published in the morgunbladid newspaper, in reykjavik, 28 february 2003. * * * when the central bank of iceland became an independent institution in 1961 it was generally believed, both here in iceland and abroad, that several different simultaneous objectives could be set for central banks. low inflation, full employment and strong economic growth were among the objectives that people felt central banks should be able to achieve. gradually it became clear that this would not work. in the work of a central bank, these objectives can come into conflict with one another, resulting in an economic fiasco. as a result, in recent years legislation on central banks has been altered in many countries and the banks assigned one principal objective : ensuring price stability. inflation is primarily a monetary phenomenon, persistent inflation being the result of insufficient restraint in monetary policy. in the long term, monetary policy thus has an impact on price levels but less on economic growth and employment. with free movement of capital between countries, the principal instrument of a central bank is interest rates ; in the long run this instrument can only achieve one macroeconomic objective, i. e. to ensure price stability. new legislation when new legislation was adopted for the central bank of iceland in 2001, these international developments were taken into consideration and the icelandic act patterned on recent legislation in other industrialised countries. there was broad political consensus on this, as people realised that low inflation is one of the cornerstones of economic growth and improved living conditions. in addition to the legislation, inflation targeting was introduced as the bank ’ s objective in a joint declaration by the government and the central bank. the decision to float the icelandic krona was taken at the same time, since experience had shown that in the long run it was impossible to ensure a specific exchange rate with free movement of capital in and out of the country. in such case the exchange rate is determined by the market where supply and demand control the value of the krona. this new framework for monetary policy was immediately subjected to a baptism of fire. the icelandic economy was overheated and inflation rising rapidly. the central bank had to respond by raising interest rates. the fall of the krona played a part in the elimination of the current account deficit much more rapidly than anyone had dared to hope two years ago. the economy

the success of an islamic finance system depends critically on having the right set of quality talent. this is more so as we aspire for islamic finance to reach greater heights, in this new normal of rapid advances in technology and changing demographics. accordingly, malaysia has made significant investments in developing a complete ecosystem dedicated to meeting the human capital needs of the islamic finance industry. our talent infrastructure caters to every level, for both academic and professional needs. dedicated talent entities for islamic finance have also been set up, such as inceif – a global university for islamic finance – and isra, a globally recognised institution in enriching research and knowledge on shariah. an important aspect of talent development is elevating the quality and professionalism of talents in islamic finance – not just in malaysia, but globally. in realising this vision, the chartered institute of islamic finance professionals was set up to promote the highest standards of professional practice among islamic finance practitioners. this is complemented by the establishment of the association of shariah advisors in islamic finance to enhance the qualification and professionalism of the shariah fraternity. two specialised certifications will be launched by the association early next month which aim to strengthen technical and ethical rigour of shariah advisors and practitioners. with an increasing range of options for professional qualifications for islamic finance, the finance accreditation agency ’ s islamic finance professional qualification structure – to be launched today – is a timely and much welcome milestone. as a learning reference structure, it streamlines and classifies the levels for islamic finance professional learning programmes. for islamic finance professionals and the organisations they represent, this will help them make better informed decisions when evaluating the suitability of the wide array of professional learning programmes on offer globally. i hope that today ’ s event would help bring you a step closer to realising your respective organisation ’ s goals in islamic finance. with that, i wish you a productive afternoon. 2 / 2 bis central bankers'speeches