It was an accident waiting to happen, and happen it did, with a vengeance, at the peak of the international financial crisis in autumn 2008, when there was a wholesale run on the FX financing of internationally active banks. After having done a post mortem on the failed banks, we now know, however, that they also had other ailments that would probably have done them in at a later stage, although the process might have been somewhat less disorderly. The combination of the macroeconomic imbalances, an unsustainable banking system, and the full eruption of the Great Financial Crisis meant that Iceland faced unprecedented challenges in 2008. The financing of the current account deficit became impossible when Iceland experienced a full-scale sudden-stop currency crisis early in the year, when the currency plummeted by 26%. Then, in the first week of October, almost 90% of the banking sector failed. This resulted in a further 26% depreciation of the currency. Although the depreciation would later contribute to the recovery, at that point it exacerbated the crisis through negative balance sheet effects on a private sector that was heavily indebted in foreign currency, both directly and indirectly, through price indexation. The outlook was bleak indeed, and many expected that the sovereign would be forced to default on its obligations. That outcome was avoided, and the economy has performed better than seemed likely that dismal autumn. Part of the reason is the nature of the shocks.
The practical preparations would include ensuring the production of new banknotes and coins, as well as the replacement of the old ones. The latter would entail a considerable logistical operation. For example, a couple of hundred large lorries would be required simply to deliver the necessary coins at the time of  BIS Review 29/2003  1  the introduction. But there is more to it than that. Computer systems would need to be converted, not least at the Riksbank, but also in many other areas of society. The Riksbank would also expend a lot of effort on providing information to the general public about the implications of a changeover. In addition, there would be a number of changes in our own operations, which I will return to later. Participation in ERM2 One important question that would become relevant during the preparatory phase is how best to ensure exchange rate stability against the euro within the scope of the exchange rate mechanism ERM2, the successor to the ERM system. In this regard, there may be reason to say something about history. The Riksbank has previously, mainly over the years 1995-1997, considered the issue of ERM participation and the possibilities for combining this with the inflation target policy that has been conducted for a number of years.