Season 3 Episode 7 - Challenges and Policy Options for Central Banks in Small, Open and Financially Integrated Economies

Dr. Mangal Goswami, Executive Director of the SEACEN Centre, talks to  former Governor Már Guðmundsson about Iceland’s crisis and recovery and  the lessons learned. More generally they discuss the challenges facing  central banks in small, open and financially integrated economies  (SOFIES) due to cross-border financial integration and volatile capital  flows. Preserving monetary and financial stability in SOFIES requires  more instruments than generally deployed before the great financial  crisis (GFC), such as foreign exchange interventions, macroprudential  tools and capital flow management tools, that in turn gives rise to the  need to develop an integrated policy framework. Finally, they discuss to  what degree these lessons are relevant in the current crisis.

The  views of former Governor Már Guðmundsson on these issues are shaped by  his terms at the Central Bank of Iceland from August 2009 to August 2019  but also by his work at the Bank for International Settlements (BIS) as  the Deputy Head of its Monetary and Economic Department from 2004-2009.  He was a chairman of a regular meeting at the BIS of Governors from  small open economies 2017-2019.