It will also be a major determinant of potential inflows from non-residents at the same time. It is precisely one of the key factors in preparing for liberalisation to facilitate the recognition of Iceland as a sound, trustworthy investment option, and that resident investors – and not only the sovereign – have access to foreign credit markets on sustainable terms. Under current conditions, this means that we need an economy that is growing and is in equilibrium, both internally and externally. We need a Treasury surplus, and we need to reduce the Treasury debt ratio. We need strong enough national saving to support a normal investment level. Given the current outlook for investment, this means we must have a surplus on the current account of the balance of payments. We need large enough foreign exchange reserves to sustain the confidence of foreign lenders, maintain our credit ratings, and cushion us against volatility. We need a banking system that is solid and resilient. As I mentioned earlier, we are doing well in many of these areas, and the conditions exist for further improvements during the current year. The extension of the maturity of Landsbankinn’s debt to the old bank (LBI), which was finally negotiated towards the end of last year, has improved the situation. It enhances the possibility of expanding the foreign 4  BIS central bankers’ speeches  exchange reserves and increasing the portion not funded with foreign credit. In 2014, the Bank was a net purchaser of foreign currency in the amount of 111 b.kr.
The liberalisation of the capital controls is a collaborative project undertaken by the Central Bank and the Government, which actually means that elected representatives have the last word on the actions taken – particularly if and when tools are used that are not in the Bank’s toolbox. Honoured guests: I have spoken at some length on monetary policy and the labour market, on the one hand, and the capital controls, on the other. But I have done so with a purpose, as these are by far the greatest economic challenges facing us at the moment. Yet the Central Bank’s sphere of activity includes many other functions as well, not least those centring on the structure and stability of the financial system. Let us hope that, when we convene a year from now for the Central Bank of Iceland’s 55th Annual General Meeting, we will have resolved successfully the urgent issues now facing us and can turn our attentions to these other areas of activity. In the field of financial stability, emphasis has been on the risks related to the capital controls and on the formulation and implementation of the prudential rules that, in our opinion, must be in place once the controls are lifted. That work is well underway. And as regards risk assessment and contingency planning, the Systemic Risk Committee and the Financial Stability Council will be meeting next month, and the Central Bank’s Financial Stability report is scheduled for publication on 22 April.