Iceland’s Guðmundsson sees role for IMF as arbiter of capital flows

The International Monetary Fund could take on a role as monitor of policy-making by the large countries that affect global capital flows with changes in their monetary policy, Central Bank of Iceland governor Már Guðmundsson said in a recent speech.

Small open economies, such as Iceland, have little choice but to implement capital flow measures and make currency interventions to defend themselves in the face of volatile capital flows, Guðmundsson said in a speech on August 5, with a translation published on August 14. Collectively the outcome is sub-optimal, but globally-agreed ‘rules of the game' seem far off.

"In spite of widespread unease about the current state of affairs, such reforms do not seem likely any time soon," he said. "Furthermore, there are complex unsolved issues involved regarding potential conflicts between domestic and global objectives."

IMF scrutiny could act as a useful interim measure. "At least, the IMF should monitor the process and, further ahead, some rules of the game regarding capital flows would be welcome," Guðmundsson said.