Már Guðmundsson: Lifting capital controls in Iceland Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at a meeting organised by the European Economics and Financial Centre, London, 26 May 2016. *  *  *  Chairman, Ladies and Gentlemen, Comprehensive capital controls were introduced in Iceland in November 2008, as part of the economic programme that the Icelandic authorities had developed with the IMF. The month before, around 90% of the banking system had collapsed when Iceland’s three overblown cross-border banks failed. Earlier that year, Iceland had experienced a full-scale sudden stop currency crisis during which the currency plummeted by 26%. It depreciated by another 26% during the banking collapse and in the weeks afterwards. And if this were not enough, Iceland was at this point on its way into a recession, as the big, unsustainable macroeconomic imbalances – most clearly demonstrated in a double-digit current account deficit – were beginning to correct. The economic programme with the IMF had three key goals: stabilisation of the exchange rate, fiscal sustainability, and reconstruction of the financial sector.
With the supervisory pillar in place, completing the Banking Union still calls – as the euro area Heads of State and of Government recently concluded – for a common backstop for the Single Resolution Fund. And, above all, the creation of a European Deposit Guarantee Scheme. 4/5  In the fiscal policy arena, fiscal stabilisation capacity in the euro area needs to be completed through two channels: improving the member countries’ fiscal headroom and developing supranational cyclical insurance instruments. To conclude, I turn once more to the Spanish Royal Academy, which defines “challenge” as an aim it is difficult to achieve and which is thereby an incentive and a test for whosoever faces it. Economic policy-making requires constantly facing the challenges our society throws up. To quote Jean Monnet, “Nothing would be more dangerous than to regard difficulties as failures”.1 Thank you. 1  Jean Monnet, Memoirs, William Collins Sons & Co. Ltd., Great Britain, 1978. 5/5