The Central Bank of Iceland is an independent institution owned by the State. The Act on the Central Bank of Iceland, no. 92/2019, stipulates that the Bank shall promote price stability, financial stability, and sound and secure financial activities. The Bank’s activities fall within the purview of the Prime Minister, but matters relating to financial stability and financial markets are administered by the Ministry of Finance and Economic Affairs. In addition to the above-listed roles, the Bank shall undertake such tasks as are consistent with its role as a central bank, such as maintaining international reserves and promoting a safe, effective financial system, including domestic and cross-border payment intermediation.
The Bank is also required under the Central Bank Act to promote the implementation of the Government’s economic policy as long as it does not consider such policy inconsistent with the Bank’s objectives.
According to the joint declaration issued by the Government of Iceland and the Central Bank of Iceland on 27 March 2001, the Bank shall aim at a rate of inflation, measured as the twelve-month increase in the consumer price index (CPI), of as close to 2½% as possible.
Financial stability means that the financial system is equipped to withstand shocks to the economy and financial markets, to mediate credit and payments, and to diversify risks appropriately.
The Central Bank is responsible for financial supervision and, as such, it monitors supervised entities to ensure that their activities are in compliance with the law and with Governmental directives, and that they are in other respects consistent with sound and appropriate business practices.
The Bank conducts transactions with domestic financial institutions and oversees domestic and foreign payments made by the Treasury and State-owned companies. The Bank also manages and invests Iceland’s international reserves.