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Iceland tightens króna controls to prevent market turmoil

20th March | Category: News

Iceland’s parliament has pushed through stricter capital controls in an effort to hamper speculative trading and to support the króna as the country seeks to emerge from its 2008 economic crisis.

Specifically, Iceland tightened controls on inflation-linked debt and on creditors of Kaupthing Bank hf, Glitnir Bank hf, and Landsbanki Islands hf. The law is designed to maintain króna stability, as controls on other currency transactions are lifted, and prohibits the liquidators of the three failed banks from paying creditors in foreign currencies. Further, the law blocks the owners of Icelandic bonds from transferring annuity and interest payments into other currencies and then transfer payments out of the country.

According to the parliament’s website, the law will allow Iceland’s Central Bank to “impose rules that would allow payments to creditors that conform with stability. In addition to preventing the possible instability in the foreign-exchange market, the changes to the foreign-exchange act proposed in the bill will level the position of parties in regards to the capital controls and prevent unnatural profits” gained by circumventing the law.

Efforts to ease capital controls are being tempered after the króna weakened 5% versus the euro this year.

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