##ly related and should be in the same currency. part of the rationale behind them is to prevent and stop runs. in the final analysis, it only works if the bank liabilities are flowing into a central bank that has the duty, willingness, and capacity to recycle them against collateral and expand its balance sheet as needed. the question therefore arises whether national deposit insurance systems should cover domestic deposits only and the payout should likewise be in domestic currency only, even for foreigndenominated deposits. in closing, let me note that the saga of the financial crisis in iceland and its interaction with the european and global financial system is a complex one. my remarks today have only given you glimpses here and there. but as with other sagas, icelanders will be writing about this for decades, if not centuries, and i think we can be confident that they will be better at writing about it than at running and supervising cross - border banks. thank you very much. bis central bankers ’ speeches

for an additional adjustment in the structure of the economy. we can summarise this as follows : the enormous current account deficit had to go, and the financial system and various other bubble - related operations had become far too large and had to be downsized. this involves considerable unemployment, partly because of layoffs in the sectors that have contracted and the lag time before new commercial activities can be established. tradable sectors must be reinforced. the key to hastening that process is re - establishing an effective financial system. although the currency may have played a role in creating the problem, the depreciation is also part of the adjustment, and it is accompanied by transitory inflation. however, when the adjustment is over, we should not be faced with persistent inflation, and it is the chief role of monetary policy to try to ensure that inflation does not become entrenched. the central bank published a new macroeconomic forecast yesterday, as well as announcing the monetary policy committee ’ s interest rate decision. the highlights are as follows : • gdp will contract by about 8½ % in 2009 and by almost 2½ % in 2010. • the contraction for 2009 is rather smaller than previously forecast. • private consumption has declined less sharply so far in 2009, probably because disposable income rose more in 2008 than previously forecast, and because of pension fund payouts amounting to some 1½ % of gdp in 2009. • in addition, unemployment has risen less than previously projected. • recovery will begin in early 2010, in the sense that quarter - on - quarter gdp will begin to grow. • at that point, however, icelanders will still consider the situation unfavourable, and it will keep deteriorating for a while, as unemployment and the output slack will continue growing well into the year, as will the contraction in private consumption. • as the second half of the year progresses, these factors, too, will begin to improve. • as always, these projections are uncertain, and the economic recovery could prove stronger or weaker. for example, one of the alternative scenarios in the new monetary bulletin assumes a considerable delay in the construction of the helguvik aluminium smelter and related power facilities, with the bulk of the development taking place in 2012. economic recovery is delayed, and the contraction in gdp will be 4 % in 2010, instead of just under 2½ %. • inflation has been higher than forecast in the recent term, as a result of a weaker k