Ásgeir Jónsson: Address – 60th Annual Meeting of the Central Bank of Iceland Address by Mr Ásgeir Jónsson, Governor of the Central Bank of Iceland, at the 60th Annual Meeting of the Central Bank of Iceland, Reykjavík, 7 April 2021. * * * Madame Prime Minister, Chair of the Supervisory Board, honoured guests: This year, 2021, can be called the Triple Crown of anniversary years for the Central Bank of Iceland. In 2021 we commemorate three earlier milestones in the Bank’s history – 1961, 1981, and 2001. The Central Bank became an independent institution in 1961 – and on this day, in fact: 7 April. So we are celebrating the Bank’s 60th anniversary today. Until 1961, central banking activities in Iceland had been in the hands of two commercial banks: first Íslandsbanki and then Landsbanki Íslands. The establishment of the Central Bank was an element in the broad economic reforms introduced in the early years of the so-called Viðreisn government coalition – reforms that released Iceland from capital controls, goods rationing, and repeated currency exchange rate adjustments. But 60 years is not an advanced age if we consider that Iceland became a sovereign country 103 years ago. With the grant of sovereignty in 1918, the Icelandic króna became an independent currency. It was not until 43 years later that a separate central bank was tasked with the conduct of monetary policy. It should come as a surprise to no one that economic policy was fairly unsuccessful over that time.
This was how I felt, anyway, when I turned 50 last year, although others may scoff if they like. On the other hand, institutions like central banks are not mortal individuals with a limited lifespan, and for them, birthdays and anniversaries are cairns marking a path with no obvious endpoint – a path that must point to the future, and to progress. The past only has meaning insofar as it illuminates the road to the future. The inflation target that we observe now is a function of much more than merely keeping inflation at bay. The policy centres on setting the right ground rules between democratically elected representatives, on the one hand, and experts or officials, on the other. And it rests on the foundations of a simple division of labour: elected representatives define monetary policy objectives, and the Central Bank has the independent power to execute policy in the pursuit of those objectives. In this context, the Central Bank can be viewed as an independent contractor engaged by the people of Iceland. The ground rules of inflation targeting have proven to be good ones for democratic countries, as inflation targeting demands transparency and public accountability, in line with the precepts governing an open society. Yes, inflation-targeting central banks work on a public stage and must be able to participate in public discourse in a dedicated and resolute way. In the final analysis, each is judged according to their actions.