of reasons, one of them being concerns about the current account deficit. subsequently the krona began to depreciate and continued to do so more or less uninterrupted but on the whole in an orderly fashion over a period of a year and a half until the end of november last year. by that time, it had fallen by about a third against other currencies. this large depreciation is not without precedent in other countries. in that respect, i might mention, since we are in stockholm and since i have drawn some parallel with the other nordic countries, that the swedish krona fell in broadly similar proportions over a period of time after the exchange rate was floated in late 1992. the depreciation of the icelandic krona fed into domestic prices and inflation picked up significantly. late last year, the exchange rate had clearly overshot sharply on the downside. then expectations turned around again. it was clear, among other things, that the economy was cooling down and that the current account deficit was shrinking fast. optimism also arose once prospects improved that the inflation spike, which followed the exchange rate depreciation, would subside quickly again. the krona began to appreciate and has by now regained an important part of its earlier value. inflation has subsided sharply again this year and expectations are that the inflation target of 2½ percent will be achieved before the end of the year. the large current account deficit recorded in the year 2000 also began to shrink rapidly, it fell by more than half in the year 2001 and the outlook is for approximate balance this year. these developments demonstrate the resilience and adaptability of the icelandic economy ; moving from a very large current account deficit to virtual balance in the course of two years and reducing inflation from bordering on a two - digit rate to 2½ percent within one year. although developments in iceland showed many of the same characteristics as those in some of the other nordic countries during the post - liberalisation rapid expansion, such as credit expansion, current account deficit, exchange rate depreciation and so on, iceland escaped the difficulties suffered by banking systems in some of the other countries. icelandic bank credit grew very rapidly in the late 1990 ’ s and into the year 2000 and a sizable portion of the credit expansion was financed with credit from abroad. the capital adequacy ratios of banks fell for a while but nevertheless remained comfortably above the minimum required and internationally recognised levels. the year 2001 also turned out to be quite favourable for the

basle ii and we hope to catch up with those already on basle iii. ladies and gentlemen, i have looked at the programme planned for these five days and i note that it covers intricate and crucial issues in the art of bank supervision. i also note that you will also have an opportunity to hear a banker ’ s perspective of corporate governance and risk management among others. clearly, the topic selection and coverage should keep all participants excited not just to learn from the resource persons but also to share experiences across the region. i am convinced, therefore, that you do not need any urging from me to remain focused. bis central bankers ’ speeches ladies and gentlemen, one of our mandates as central banks is to ensure soundness and smooth functioning of financial institutions. we do this by contributing to the development of a system that effectively intermediates funds between savers and investors, and thereby supporting investment, trade, employment and economic development. we also have a responsibility to create effective supervisory frameworks and regulations with clear mandates, operational independence, defined accountabilities, appropriate tools and adequate resources. to ably do so, calls for insight into the operational environment, regional and international trends, as well as technical capacity which is central to this intermediate banking supervision workshop. the task ahead of you, therefore, is to learn and absorb as much as possible. thereafter, use the knowledge and make a difference. i am confident that you will leave this forum with a new mind set, that is, a pragmatic paradigm shift to put into practice what you will have learnt and, a renewed commitment to improve supervisory frameworks in your respective countries. once again, may i take this opportunity to weicome you all to this workshop and in particular to malawi. i also wish to welcome and thank our distinguished resource persons, for accepting invitations to come for this workshop. finally, ladies and gentlemen allow me to take this opportunity to express my gratitude to the reserve bank of zimbabwe, bank of tanzania, and standard bank malawi limited for releasing officials from their institutions to facilitate in this workshop. i wish you all the best during the workshop and your stay in blantyre. with these remarks, i declare this workshop officially opened. thank you. bis central bankers ’ speeches