The government’s bill amending the Central Bank Act has been passed by the Icelandic parliament Althingi. Major changes are made to the Central Bank’s administrative structure, its Governors reduced in number and a Monetary Policy Committee established. Strict requirements concerning professional qualifications will be made of applicants for appointment as Governor. The changes are intended to reinforce the underlying professional expertise at the Central Bank and boost confidence in it both in the long and short term. At the same time, the changes will increase confidence in the Icelandic financial system.
Two basic changes made to the administration of the Central Bank of Iceland
The Act makes two basic changes to the administrative structure of the Central Bank of Iceland. Firstly, the current Board of Governors of the Central Bank is abolished, and thereby the positions of the three current Governors comprising this Board, including the position of the Chairman of the Board of Governors. It is replaced by a single Governor and a Deputy Governor, who will act in the Governor’s stead in his/her absence. Secondly, the Act establishes a Monetary Policy Committee within the Bank.
Monetary Policy Committee
The Act provides for a new Monetary Policy Committee to be established within the Central Bank, entrusted with taking decisions on the application of the Bank’s monetary policy control mechanisms, which are in this context its interest rate decisions, transactions with credit institutions and decisions on minimum reserve requirements and foreign currency trading intended to influence the ISK exchange rate. Decisions by the Monetary Policy Committee must be based on the Bank’s objectives and a thorough assessment of the current situation of and outlook for the economy and monetary issues. The introduction of the Monetary Policy Committee and tasks assigned to it is aimed at further reinforcing the professional expertise underlying monetary policy decisions by the Central Bank of Iceland.
Professional expertise required for appointment as Governor and Deputy Governor
Amendments in the Act also require candidates for appointment as Governor and Deputy Governor to satisfy strict requirements concerning professional qualifications.
The Act stipulates that persons appointed to the position of Governor and Deputy Governor of the Central Bank must have completed a university degree in economics or a related subject and possess extensive experience and expertise in financial activities and in economic and monetary affairs. It also provides for the Prime Minister, when making the appointment to the position of Governor or Deputy Governor, to appoint a committee of three persons to assess the qualifications of candidates for the positions. This provision is intended to ensure that qualified individuals are always selected as Governor and Deputy Governor and that the most qualified person from among the applicants is appointed to the position concerned.
Following the entry into force of the Act, the Prime Minister shall, as soon as practicable, advertise for applications for the new positions of Governor and Deputy Governor of the Central Bank, as provided for by the Act.
Provisional appointment of acting Governor and Deputy Governor
Immediately upon the entry into force of the Act, and in accordance with its provisions, the Prime Minister will provisionally appoint individuals satisfying the requirements of the Act to the positions of Governor and Deputy Governor of the Central Bank of Iceland, until permanent appointment can be made to these positions following advertisement as described above. Accordingly, a new Governor and new Deputy Governor of the Central Bank of Iceland will commence their duties in the Central Bank of Iceland tomorrow, as the Act will then have entered into force following its publication.
Appointment of two members to the Monetary Policy Committee
In addition, the Prime Minister will shortly appoint two experts in the area of economic and monetary policy to the Monetary Policy Committee as provided for in the Act.
Election of the new supervisory board of the Central Bank of Iceland
Pursuant to the Act, Althingi shall, as soon as practicable following its entry into force, elect a new Supervisory Board for the Central Bank of Iceland, together with alternates. Once this is achieved the mandate of those persons currently sitting on the Supervisory Board will be cancelled.