There were, of course, “cold turkey” alternatives, but they were considered too risky at the time. The Central Bank of Iceland’s effective policy rate peaked at 18% in early 2009 (at the time, the seven-day collateral lending rate) but has now been reduced to around 5½% (now the average of the rates on certificates of deposit and current accounts). The exchange rate stabilised in the second half of 2009 with no supporting intervention since early November 2009. So far this year, the exchange rate has appreciated by 11% in trade-weighted terms, again without any supporting intervention. This has alleviated pressures on impaired private sector balance sheets and contributed to relatively speedy disinflation. Fiscal policy was set within a medium-term fiscal consolidation programme covering the period 2009–2013. The programme aims at a primary surplus in 2011 and a substantial overall surplus in 2013, making it possible to reduce Treasury debt from that year onwards. The announcement of a medium-term plan made it possible for automatic fiscal stabilisers to work more or less unhindered in 2009, with fiscal consolidation taking hold in 2010. This was important in two respects. First, it limited the negative demand effects of fiscal consolidation precisely when the recession was at its steepest. Second, it sent a signal that adverse public sector debt dynamics would be addressed over the medium term, thus reducing risk premia in domestic and foreign interest rates facing the sovereign.
In both dimensions, I believe this kind of long-term approach is the hallmark of a high-quality financial system. Concluding remarks 27. I hope these reflections have shed some light on Hong Kong’s distinctive qualities as an international financial centre. It is resilient – our institutions and markets remain safe and sound in good times and bad. And it offers huge opportunities to local and global participants, driven by the Mainland’s continued financial liberalisation, as well as developments in fintech and green finance. 28. My team and I are committed to upholding these qualities. We will continue to reinforce Hong Kong’s position as an international financial centre of the highest quality. This journey has no end – and we will rely as always on strong support from everyone that we work with, including many of you. I am confident that, by working together, we can continue to build on Hong Kong’s unique foundation – and enhance our position as one of the world’s pre3/4  BIS central bankers' speeches  eminent financial centres. 29. It only remains for me to thank the Hong Kong Management Association for having me here tonight; to thank you all for your attention; and to congratulate the winners of the Quality Award – your achievements are rightly honoured today. 4/4  BIS central bankers' speeches