Over the past five years, the real exchange rate has moved within a relatively narrow band little more than five percentage points wide. Except for the post-September 11 period, when the Swiss franc appreciated markedly, the external value of the franc has largely reflected economic fundamentals. In fact, even the post-9/11 safe-haven effect was relatively mild compared to what we experienced in the past, during the seventies and the eighties, for instance. 4. A new international monetary order  I believe that one could make the case that the introduction of the euro has brought about a new international monetary order, that it has produced an element of stability that benefits many countries, not just Europe’s immediate neighbours, but nations around the globe. As we have seen, movements in the dollar/mark exchange rate were magnified as far as the Swiss franc is concerned in the past, but are much dampened today. When the euro depreciated against the dollar, the Swiss franc did so too, but by a much lesser degree. And later, when the euro appreciated against the dollar, the franc appreciated as well, but again to a lesser extent. In other words, our effective exchange rate has been less affected, the movement of the dollar being offset, at least to some extent, by a movement of the euro in the opposite direction.
In weighing up this decision, interest rate reductions among some of Iceland's trading countries in recent months have also been taken into account. Exchange rate To reiterate, the main objective of monetary policy is price stability. Since the exchange rate is an important determinant of prices, exchange rate stability has been an intermediate objective of monetary policy. During the first four months of last year the króna appreciated somewhat, but this trend was reversed in the middle of June and the currency was under pressure for most of the time until the end of the year. It depreciated by almost 9% from the end of 1999 to the end of 2000. To some extent the depreciation was triggered by fishing quota cutbacks and the resulting deterioration in the economic outlook. Demand for foreign exchange also outstripped supply because of last year's current account deficit, which is estimated at ISK 68.9 billion, as well as heavy investment by Icelanders in foreign securities amounting to almost ISK 40 billion net. Pension funds play the leading role in these investments. By the end of 2000, the real exchange rate of the króna had fallen below its average for the past twenty years. Actions in the foreign exchange market Under the prevailing circumstances, the Central Bank considered it necessary to take action to counter the depreciation of the króna. Besides raising its interest rates, the Bank intervened in foreign exchange markets thirteen times after the middle of 2000 in order to cushion against sharp fluctuations.