and the monetary policy committee face uncertainty about when, and in what stages, it will be possible to lift the controls. in line with transparent monetary policy implementation, the monetary policy committee has explained how this uncertainty affects its decisions. to that end, the committee has given an account of various factors that affect the prospects of continuing the phased capital account liberalisation that began in november 2009. uncertainty about key supreme court decisions and the third imf review increased the likelihood that the next stage of liberalisation could be delayed quite a while. the bond market appeared to interpret this delay to be more fundamental in nature than the monetary policy committee intended to convey in its statement, thus contributing to the decline in yields that had begun somewhat earlier. the uncertainty had abated by the time the monetary policy committee met in september, and the committee explained this in its statement. furthermore, the committee implied that it would inevitably consider this point in its next interest rate decisions. this shift represented not a change in policy but a response to changed circumstances. one of the prerequisites for lifting the capital controls without causing exchange rate instability is a sufficiently strong external balance – preferably a surplus. that prerequisite has already been met to the extent that the central bank has initiated regular foreign exchange purchases in the market. excluding the estates of the failed banks, there is a sizeable trade surplus. when winding - up proceedings conclude, there will be a net debt to non - residents ; however, it will probably not be large enough to eliminate the underlying surplus. the fundamental problem lies not with the current account balance but with capital movements. residents ’ payments on foreign loans will probably exceed inflows of new borrowed funds or other investments as long as iceland ’ s access to foreign credit markets is constrained and economic recovery is delayed. however, landsvirkjun ’ s recent bond issue indicates that foreign credit markets are not entirely closed, although few firms are in a position to obtain foreign credit and the terms are far from favourable. it would arguably be wise to commence capital account liberalisation while the real exchange rate is relatively low. with a relatively low real exchange rate, owners of isk assets en masse are less likely to view the removal of capital controls as a selling opportunity, and it is more likely that foreign investors will view it as an opportunity to acquire kronur from those wishing to sell. the real exchange rate of the krona is somewhat below its likely long - term average, although it has risen in the past

been undervalued by the markets, for example relative to comparable businesses in other countries, and another that bold and determined investment ventures have driven up their value. but risk and gain often go hand in hand. sometimes the stakes may be raised too high. it has long been customary to pay a premium for attractive investment options. such goodwill used to be depreciated in companies ’ accounts over a long period and rarely affected their operations. the situation has changed whereby companies now need to make impairment tests of the goodwill they enter on the asset side of their balance sheets. if their original ventures fall flat, the goodwill must be depreciated accordingly. thus there is a risk, if conditions deteriorate, that this rule could amplify a company ’ s negative results at the worst possible time. goodwill totalling more than 500 b. kr. was entered in the financial statements for 2006 of companies listed on iceland stock exchange, and at certain companies, goodwill and other intangibles account for more than half of the total assets on their books. this is a cause for some deliberation. although the central bank ’ s main function on occasions such as this is to draw particular attention to causes for concern, it should of course take note, like everyone else, of the factors conducive to strengthening the long - term economic outlook. iceland ’ s economy is advanced, transparent and vibrant. its strong fiscal position is exemplary, and the population is relatively young, well educated and quick to adapt to technological and scientific innovations of all kinds. a strong pension system has been built up and – unlike other countries that have great fears about the future of their pension systems and their sustainability – it is clear that iceland ’ s pension system is becoming increasingly stronger. admittedly it is still not mature enough to have begun to pay out a representative proportion of its owners ’ lifetime earnings, but this proportion is growing every year and all the pointers indicate that, for the foreseeable future, it will be highly sustainable. thus the pension system is going from strength to strength in iceland, at the same time as significant weaknesses are coming to the fore in many comparable economies. real incomes in iceland rank with the highest in the world, and unemployment with the lowest. large - scale investments have recently been made which will generate handsome export revenues. traditional sectors currently enjoy secure markets and high product prices. undeniably this picture looks very bright and many more positive signs could be cited.