. it has always been considered wise for farmers to make hay while the sun shines, ensuring that they will have ample supplies to see them through hard times. this principle proved its worth during the covid - 19 pandemic, when tourism industry revenues more or less dried up overnight in march 2020 and the krona began to depreciate. the central bank responded and, in 2020 and 2021, sold currency equivalent of 965 million euros, or 155 b. kr. in the foreign exchange market to support the krona and ensure price stability. but abundant international reserves are also important even if they lie untouched. in this case, the biblical text about how faith can move mountains is very apt. as an example, we can take what happened during the pandemic – or more precisely, what did not happen during the pandemic : there was no capital flight from the icelandic krona, even though exports shrank by over 30 %, the largest single - year contraction in exports in the history of iceland's modern national accounts. the fact that there was no capital flight is doubtless due in large part to iceland's large international reserves and sound economic policy. abundant reserves are important not only for the credibility of the central bank, but also for the credibility of the entire icelandic financial system. this can be seen in the terms 5 / 9 bis - central bankers'speeches offered to icelandic firms and the icelandic government in international credit markets, for instance, and in statements issued by credit rating agencies and international institutions. when the central bank buys foreign currency in the interbank market, it pays in icelandic kronur. all else being equal, this is equivalent to injecting liquidity into the financial system. as a result, it was necessary to sterilise the intervention in the foreign exchange market by, among other things, offering the banks the option of holding liquid assets in the central bank as deposits. in previous years, the bank's policy interest rate was defined as the rate on collateralised seven - day loans. the reverse is now true. the policy rate, or key interest rate, is now the rate on seven - day term deposits with the bank. the experience of recent years has shown that using the deposit rate as a policy instrument has resulted in very effective transmission of monetary policy to the real economy. the problem is, though, that the application of monetary policy has changed : instead of being an income - generating function for the central bank,

' t go further into that story here. honoured guests : the present situation is similar to that in the early 1970s in many ways. a new, labourintensive industry – land - based freezing of fish – was introduced shortly after 1970, concurrent with the expansion of iceland's territorial waters. gdp growth measured over 9 % in 1972, as it did in 2022. then, in 1973, an international energy crisis struck and there was a volcanic eruption on heimaey, and some 5, 000 people – perhaps more – found themselves looking for a new home. but what sets the two periods apart from one another is that in the 1970s, the central bank had neither the authority nor the independence to respond to inflation by tightening the monetary stance. the situation today, of course, is entirely different. the central bank was granted independence in 2001, and the inflation target was adopted at the same time. this brought with it a simple division of tasks : democratically elected representatives decided on an appropriate inflation rate and then empowered the central bank with implementing it. i view this division of labour as a key factor, not only for price stability but for political stability as well. nevertheless, monetary policy needs political support and prudent fiscal policy. both parliament and the government must safeguard the central bank's independence and ensure that the bank can perform the role entrusted to it by law. inflation targeting has been highly successful in countries with a long history of democracy, as the groundrules require transparency and public accountability, which are compatible with the groundrules of an open society. with amendments to the central bank act that entered into force at the beginning of 2020, the bank's responsibilities were expanded further. the financial supervisory authority merged with the central bank of iceland, and responsibility for financial stability and financial supervision were placed under the aegis of the merged institution, alongside price stability. these three functions support one another in the achievement of a stable economy and financial system. the methodology entailed in inflation targeting – which prioritises clear ground rules, transparency, and public accountability – has been adapted to the central bank's other two key objectives : financial stability, and sound and secure financial activities. ; i. e., financial supervision. in the main, decisions on the application of the bank's policy 3 / 9 bis - central bankers'speeches instruments and the imposition of penalties are taken by three standing committees whose members include outside experts, thereby ensuring transparency and distribution of power.