The Central Bank of Iceland’s international reserves comprise the Bank’s external assets in foreign currencies; i.e., foreign bank deposits, bond holdings, special drawing rights and deposits with the International Monetary Fund (IMF), gold, and other foreign assets.
The role of the Central Bank of Iceland’s international reserves
- To mitigate fluctuations in Iceland’s balance of payments (payments between Iceland and foreign countries), through intervention in the foreign exchange market with an eye to the Bank’s monetary and exchange rate policies;
- To reduce the likelihood that movement of capital to and from Iceland will compromise financial stability;
- To play a part in the Treasury and Central Bank’s management of assets and liabilities, so that the Icelandic Government can service its foreign debt, pay foreign expenses, and honour other international obligations;
- As a reserve fund that can be tapped in the event of large, unexpected shocks that undermine foreign currency generation.
Management and investment of the international reserves
Pursuant to Act no. 92/2019, the Central Bank of Iceland maintains and manages the international reserves in accordance with its objectives and its role as a central bank. The Rules on Reserve Maintenance are adopted with reference to Article 3, Paragraph 3 and Article 30, Paragraph 1 of Act no. 92/2019. They are set by the Governor and Deputy Governors. The Bank’s Financial Risk Council advises them on reserve maintenance and oversees compliance with the rules. The rules contain provisions on key points concerning reserve maintenance, including purpose, structure, investment authorisations, and outside limits of acceptable risk.
- Further discussion of the foreign exchange reserves can be found in the Bank’s annual reports.
- Further information on the balance of the reserves.