Laws and rules

In May 2001, a new Act on the Central Bank of Iceland entered into force. In February 26, 2009 the Act was amended by Act no. 5/2009. The main elements of the new Act are as follows:

The main objective of monetary policy is to maintain price stability. With the approval of the Prime Minister, the Bank is authorised to adopt an inflation target as a framework for the conduct of monetary policy. An inflation target had been adopted on March 27, 2001 through a joint declaration of the Government and the Central Bank. By law, the Bank shall also promote other objectives, such as an efficient and safe financial system, including payments systems, and other tasks consistent with its role as a central bank. The Bank shall support the economic policy of the Government as long as it does not deem it inconsistent with the objective of price stability. The Act thus gives instrument independence to the Central Bank. The de facto ban on credit to the public sector that has been in force since the early 1990's becomes law with the new Act. Exchange rate policy is decided by the Central Bank, subject to the approval of the Prime Minister, but it has to be consistent with the main monetary policy objective of price stability. A lender of last resort function is provided for.

In sum, the Bank was granted instrument independence, its financial independence was better  ensured and the legal demands on transparency and accountability were strengthened.

The Act from May 2001 is explained further in Monetary Bulletin 2001/3

In February 2009, the Act on the Central Bank was further amended. The main changes were that one Governor (and one Vice Governor) was appointed instead of three and that a Monetary Policy Committee, consisting of five members makes the decision on policy interest rates. The Act on the Central Bank was amended in July 2013, and the Central Bank was given an explicit mandate of promoting financial stability. A Financial Stability Council was established in 2014. The chairman of the Council is the Minister of Finance and Economic Affairs. A Systemic Risk Committee working for the Financial Stability Council was also established in 2014. The Governor of the Central Bank chairs the Systemic Risk Committee.

The Supervisory Board supervises the activities of the Bank and must approve various rules which are issued by the Governor. The Supervisory Board also has to approve the operating budget for the Bank at the beginning of each year. 

 

 

Act on the Central Bank of Iceland and other acts

On this page is an English translation of the Act on the Central Bank of Iceland and some other acts that concern the Central Bank. The original Icelandic text, as published in the Law Gazette (Stjórnartíðindi), is the authoritative text. Should there be discrepancy between this translation and the authoritative text, the latter prevails.

 

Rules

On this page you can find various rules and decisions made by or concenring the Central Bank of Iceland.