Touching briefly on the stock market, equity trading in Iceland has risen very rapidly in recent years, as has the number of publicly listed companies and their total market capitalisation. Among other things, the depth of the market is increasing because of the incorporation and privatisation of public enterprises, including the banks. The laws and regulations pertaining to the stock market, including disclosure requirements, are similar to those in other European countries. The conduct of monetary policy Turning more specifically to the Central Bank of Iceland and the conduct of monetary policy, the current legislation stipulates many goals for the Bank. With the liberalisation of financial markets and the opening up of the capital account, as well as with international developments towards greater independence for central banks and simplified policy targets, the main target of the Central Bank of Iceland has gradually become that of maintaining a low rate of inflation. The Bank has also gained greater independence than is strictly provided for in the current law, which it has achieved with the tacit approval of the Government, but partly in agreements on specific aspects. In my view, this is important for enhancing the credibility of monetary policy and the Central Bank. Credibility is very fragile and it takes strong effort and careful policy and policy implementation to enhance and maintain it. Another objective of the Central Bank is to monitor the stability of the financial system.
There is no doubt that having to call off a test at the last minute because of insufficient planning will be counter-productive to reaching such a goal. Contingency Planning The final issue I will discuss today is contingency planning. Much has been said about the need to develop contingency plans for the Year 2000 conversion, and I fully support these efforts. We need contingency plans in place for two main reasons. First, to ensure that we have considered how to handle the inevitable disruptions that will occur as a result of Year 2000, and, second, to help build confidence that disruptions will not have systemic consequences. In the process of contingency planning, we must also keep in mind that it is prudent to consider the possibility of some very serious, but improbable, events. Contingency planning for Year 2000 will not be limited to the century rollover itself. As my colleague, Roger Ferguson, has described it, there will be a Year 2000 “shadow” that will affect financial markets both before and after the event itself. This shadow will relate to BIS Review 85/1998  -8-  the uncertainty among market participants about the possible consequences of Year 2000 disruptions for particular firms and markets. In some cases, this concern will lead market participants to consider conventions and procedures for limiting risks during the rollover itself. For example, some transactions that normally would be executed for settlement on January 3, 2000 may be postponed.