In the August issue of the Central Bank of IcelandMonetary Bulletin , the Bank announced its intentionto purchase foreign currency in the domestic interbank market in order tostrengthen its external position.  The Central Bank has now introduced tomarket makers(1)in thedomestic foreign exchange market the modalities of the operations.  Themain objective will be to purchase USD in an amount equivalent to as much as 20billion Icelandic krónur before the end of next year, 2003.  The Bank'soperations are not intended to affect the exchange rate of the króna.  Theobjective is only to strengthen the external position of the Bank.

The Central Bank of Iceland intends to purchase foreign currency from themarket makers by two means:

1.  Regular purchases.  Up to threetimes a week, the Bank will purchase 1.5 million USD (equivalent now to roughlya 130 million kr.) each time.  The purchases will take place from 9 a.m. to9:15 a.m. Mondays, Wednesdays and/or Fridays.  The amount of each purchaseis only a fraction of normal turnover in the domestic foreign exchangemarket.

2.  Irregular purchases.  The Central Bank stands ready topurchase foreign exchange from the market makers at their initiative in higheramounts.  The pre-condition for such purchases is that the currency rate ofthe króna has strengthened from the latest official quotation.

If the Central Bank of Iceland deems conditions in the foreign exchangemarket such that purchases of foreign exchange would be ill-advised when theyotherwise would have taken place, then it may choose not to enter into purchasesfor the time being.

Regular purchases of foreign currency in the interbank market will commenceon September 2, 2002.

1) Market makers are: Búnaðarbanki Íslands hf., Íslandsbanki hf, Kaupþingbanki hf., and Landsbanki Íslands hf.

Nr.10/2002

August 28, 2002