their opinion, this would generate significant income for the treasury and facilitate the full removal of the capital controls much sooner than is currently projected. but the danger is that foreign exchange reserves would be depleted commensurate with the rise in government revenue. it is not as easy to control the scope of transactions in this way so as to prevent undue strain on the reserves, the banks ’ liquidity, and the treasury ’ s short - term financing. the main problem, however, is that the incentive for long - term investors to purchase kronur from distressed investors will disappear as soon as the exit tax is imposed. the difference between the onshore and offshore exchange rates, which is the incentive for the transaction, would revert to the treasury. this reduces the likelihood that the problem can be solved within the private sector, without tapping the nation ’ s foreign exchange reserves. those most concerned about the harmfulness of the capital controls must also realise that substantial revenues from the exit tax could provide an incentive for the authorities to maintain the controls for as long as possible. i mentioned just now that non - resident owners of treasury bonds did not participate significantly in the auctions held earlier in the year, and that some of them may continue to invest in treasury bonds for the long term. this does not mean that they will not want to sell when the capital controls are removed, given the foreign exchange risk that may be perceived at that time. in order to reduce such selling pressure and build confidence in the process, it is planned to offer owners of short - term treasury bonds the opportunity to exchange them for foreigndenominated bonds. this will allow investors to avoid the foreign exchange risk temporarily, although creditor risk vis - a - vis the treasury will still exist. it is too early to speculate on the duration of the bonds that would be offered. that would be determined by the conditions prevailing at the time. the more successful the authorities are in reversing the trend in public sector debt, the more likely investors will be to buy long - term bonds and the better protected bis central bankers ’ speeches the treasury will be against the short - term exchange rate volatility that could accompany capital account liberalisation. implementation of precautionary rules is also an important part of the preparation for ultimate removal of the controls. ladies and gentlemen the capital controls are harmful. no one knows that better than those who must enforce them. they are even more harmful if they are not enforced. there are those who

want precisely dated schedules for more rapid liberalisation than is currently planned, and their impatience is understandable. but a precisely dated schedule would not necessarily speed up the removal of the controls – not without correspondingly greater willingness to take on risk. i welcome the constructive criticism and exchange of opinions that come to the fore at meetings such as this one, however, and i urge others to air their views. in my opinion, the capital account liberalisation strategy is based on sensible arguments, which i have described briefly in my presentation today. on the other hand, it is not etched in stone, and in the final analysis, experience will reveal the truth. the liberalisation strategy can be implemented in various ways and adapted to actual developments. sound ideas on this subject are most welcome. but at this juncture, i believe it is best that we follow the path already mapped out, with strong emphasis on safeguarding the foreign exchange reserves, financial stability, and treasury financing. bis central bankers ’ speeches