Published on January 8, 2009

Iceland Imposes Foreign Exchange Controls

Following the landslide drop of value of the Icelandic króna that has occurred in 2008, with the EUR/ISK rate surging from 90 krónur to the euro in January to 305 krónur to the euro in October 2008, and the liquidity issues of Iceland's three large banking groups — Glitnir, Kaupthing, and Landsbanki —, in November 2008 the Icelandic Parliament passed an act amending the Foreign Exchange Act of 1992, granting the Central Bank of Iceland the authority to issue new Rules on Foreign Exchange.

On November 28th, 2008, the Central Bank of Iceland (CBI) issued new Rules on Foreign Exchange, replacing them on December 15th, 2008 by a second set of rules.

CBI's new rules put in place foreign exchange controls. Among other things, they prohibit foreign exchange related to capital account transactions and require domestic parties to submit all foreign currency they acquire, either from the sale of goods and services or in another manner, to a domestic financial institution.

The full text of the new rules is available here.

On December 10, 2008, the European Central Bank has stopped publishing foreign exchange reference rates of the Icelandic króna.

The last rate published by the ECB was 1 EUR = 290.00 ISK (3-9 Dec 2008).

The Central Bank of Iceland (CBI) continues to publish the official exchange rates but it is unclear whether they reflect the real exchange rates of the króna or not.

It is also unclear if there is a market for the Icelandic króna any more, as the Central Bank of Iceland has been virtually the only provider of foreign exchange on the domestic currency market lately, through the sale of foreign exchange from its reserves.