Iceland passes new capital controls legislation

In a late-night session yesterday, Icelandic MPs passed landmark legislation paving the way to lifting the capital controls in place since November 2008.

The ‘offshore króna’ bill is the second stage of a multi-phase strategy to lift Iceland’s capital controls. The bill was moved by Iceland’s Minister for Finance and Economic Affairs, Bjarni Benediktsson.

MORE: Capital controls plan announced

“The first step in that strategy was to solve the problem created by the failed financial institutions’ estates, and that problem has now been solved in full,” reads a Finance Ministry press release.

This new bill addresses the problem of so-called ‘offshore króna’.

“Offshore króna assets currently total over ISK 300 billion [approx. €2.15 billion] and are considered highly likely to seek an exit from the Icelandic economy with potentially negative consequences for the balance of payments and financial stability,” says the Ministry.

“Offshore króna assets will continue to be subject to special restrictions, and the main objective of the bill of legislation is to segregate them more clearly and securely than is currently the case.”

MORE: Iceland to come out of capital controls in 2016

The next step is for Central Bank of Iceland to hold a foreign currency auction enabling owners of offshore króna to exchanging their ISK assets for euros. Offshore króna assets not used in the Central Bank auction will be subject to the restrictions laid down in the new legislation.

“This phase in the authorities' capital account liberalisation strategy paves the way for further steps, which will focus on households and businesses in Iceland,” concludes the press release.