Iceland ends capital controls
Investors in Iceland will henceforth be able to buy and sell assets abroad after the government announced a final lifting of capital controls in place since the country was forced to respond to the near-bankruptcy forced on it through the credit crunch and ensuing global financial crisis, which saw an implosion in the country’s banking sector.
The controls have been lifted on individuals, companies, and pension funds. Meanwhile, the Central Bank of Iceland has also announced it has acquired some 90bn króna from offshore holders of the currency; this is intended to safeguard against monetary, exchange rate and financial instability, the bank said. The purchases are being funded by foreign exchange reserves.
The controls were originally implemented together with agreement from the IMF, which oversaw the response to the country’s financial crisis at the time. Some controls were lifted previously (see http://www.investmenteurope.net/regions/swedendenmarkfinlandnorway/capital-controls-announcement-expected-from-iceland/) and regulated Icelandic businesses have recently been growing their presence in financial centres such as London (see http://www.investmenteurope.net/regions/icelandic-financial-firm-coming-cold-fca-approval/).
Now, offshore holders of króna will be asked to transact with the central bank at at a particular exchange rate over the coming two weeks. Currency not sold to the bank will be subject to restrictions until the relevant law “has been reviewed and amended.”
A taskforce has been set up by the government to assess monetary and currency policies going forward, in context of GDP growth, inflation, interest rates, exchange rates, unemployment and inflation.
For local investors, the lifting of the final controls means that those looking to cross-border transactions will be able to once again consider repatriation of assets abroad, as well as engaging in more investments overseas. The restrictions meant that surpluses in the economy, for example, in the form of long term savings have targeted domestic assets at a time of general economic recovery. As the government noted in its latest statement on the issue: “This is important for the pension funds which need to diversify risk in their investment portfolios.”