A step closer towards lifting controls
Bjarni Benediktsson, Icelandic Minister for Finance and Economic Affairs. Photo: Ómar Óskarsson
The announcement last Friday from the Central Bank of Iceland that it has cut investment opportunities for off-shore holders of Icelandic króna (ISK) by scaling down the list of possible exemptions from current capital controls is a first step towards lifting restrictions completely. This is the assessment of Icelandic Minister for Finance and Economic Affairs, Bjarni Benediktsson.
Avoiding instability
“The point of these changes is to pave the way for lifting restrictions fully. Off-shore holders of ISK will be offered investment opportunities which will considerably reduce the likelihood of instability when capital controls are lifted,” explains Benediktsson.
While work on lifting capital controls is said to be going well, the Minister was unable to give specific details on when the next measures will be announced. Full details of the amendments announced by the Central Bank of Iceland on Friday are available here.
Off-shore ISK 15% of GDP
In the view of the Governor of the Central Bank of Iceland, Már Guðmundsson, the Bank’s decision to reduce the range of financial instruments exempted from existing currency restrictions is a “safety measure intended to ‘freeze’ the current situation until such time as investors can be presented with investment opportunities aimed at reducing the likelihood of instability when capital controls are lifted.”
According to Guðmundsson, off-shore ISK restricted by capital controls amounts to some 15% of Icelandic GDP.
Már Guðmundsson, Governor of the Central Bank of Iceland. Photo: Þórður Arnar Þórðarson
Six years and counting
Capital controls in their current form have been in place in Iceland since November 2008. They were put in place in response to the collapse of all three of the country’s major privately owned commercial banks and the ensuing financial crisis.
