According to Act no. 36/2001, the Central Bank of Iceland maintains and manages international reserves in accordance with its objectives and its role as a central bank. Reserve assets are the Central Bank’s foreign assets in foreign currencies and special drawing rights (SDR), deposits with the International Monetary Fund (IMF), gold, and other international reserves.
The international reserves limit risk and mitigate the effects of external risks related to changes in access to foreign credit and fluctuations in capital flows to and from Iceland. They enable the Bank to help the Treasury meet its need for foreign currency and fulfil its foreign debt obligations. The reserves create in the market the confidence that Iceland is able to service its foreign debt. They can also be used to support monetary policy.
Rules of procedure on the maintenance of the international reserves are set by the Governor and confirmed by the Supervisory Board on the basis of Article 20, Paragraph 1 of Act no. 36/2001. The rules define the thresholds for acceptable financial risk levels due to the international reserves. They also contain stipulations on responsibility and division of tasks related to the investment of the reserves and set forth the principles governing financial risk and how it is measured, identified, and managed.
Further discussion of the international reserves can be found in the Bank’s annual reports.