than the euro would have serious drawbacks. 8 therefore, reforming the current regime appears preferable to a radical change should emu membership be unattainable, at least for the next decade. the fact that the vast majority of small countries either use another country ’ s currency or pursue some type of rigid fixed exchange rate policy could indicate, however, that a floating currency may face difficulties over the long haul ( chart 3 ). ladies and gentlemen : no monetary framework or choice of currency will solve iceland ’ s economic problems once and for all. the set of solutions labelled “ cure - for - all - ills ” is an empty set. protracted discussions of the contents of an empty set are not only empty in themselves ; they are absolutely pointless. irrespective of the framework, economic policy must be pursued with greater discipline than has been the case to date. however, imposing a framework that forces the authorities to adopt more long - term oriented policies could improve performance. one way to do this is to join a currency union. the experience of greece and other countries on the periphery of the emu shows, however, that if economic policies remain short - sighted and solving imminent fiscal problems is delayed for too long, the imposed discipline is anything but palatable. i think iceland ’ s experience of its collaboration with the imf indicates, however, that it would flourish under such discipline. but if emu membership is not an option, that discipline must come from within. the reforms proposed by the central bank in two recent reports are designed to foster such discipline. in many instances, the same measures could contribute to stability and sustainable output growth as a member of a currency union and, in some respects, could be easier to implement from within it. thank you. the most viable option would perhaps be the danish krone, provided that the authorities were willing to bet on its continued stability vis - a - vis the euro. bis central bankers ’ speeches below are the slides shown during the speech : chart 1 chart 2 bis central bankers ’ speeches chart 3 bis central bankers ’ speeches

mar guðmundsson : monetary policy at a crossroads speech by mr mar guðmundsson, governor of the central bank of iceland, at the icelandic chamber of commerce monetary policy meeting, reykjavik, 5 november 2015. * * * honoured chairman, ladies and gentlemen : the iceland chamber of commerce has a decades - long tradition of holding a meeting like this one on economic developments and prospects and monetary policy. the meeting is held following the publication of the central bank ’ s autumn forecast and, in latter years, the monetary policy committee ’ s interest rate decision. the title of my talk today is monetary policy at a crossroads. these crossroads are, first, the disappearance of the slack in the economy and the development of a positive output gap, with the result that the task of monetary policy is no longer to stimulate gdp growth to the extent that the inflation target allows but to ensure that the tension in the economy does not cause overheating, which would jeopardise economic stability. the second crossroads is that, in recent months, the labour market situation has become much more serious than would have been anticipated given the state of the economy. the third lies in the unusual level of uncertainty about the inflation outlook, stemming from the interplay between domestic inflationary pressures and the global tendency towards deflation. and fourth is the recent rapid progress in solving the of the balance of payments problem iceland has faced since the financial crisis struck and the approaching liberalisation of capital controls. because of this, the monetary policy transmission mechanism has been somewhat disturbed, as iceland is more susceptible to contagion from low global interest rates at a time when financial conditions and the banks ’ liquidity are changing. some might say that these represent challenges rather than a crossroads. i prefer crossroads as a metaphor, however, because in all of these instances the economy is moving from one state to another. this certainly poses challenges for monetary policy and for all economic policy. but they are compounded by the fact that the economy is travelling through all of these crossroads at roughly the same time, and the challenges often interact in a manner that makes monetary policy formulation and conduct more problematic than usual. this will become clearer after i have described each of the crossroads more fully. the first one is growing demand pressures in the domestic economy. according to the bank ’ s forecast, published yesterday, gdp growth in 2015 and 2016, measuring 4. 6 % and 3. 2 %, respectively, will exceed growth in potential output. the sizeable slack that