The island nation of Iceland has announced that all capital controls on its citizens, businesses and pension funds will be lifted from tomorrow.
“This is a very pleasant turning point in the economic rebuilding after the financial crisis of 2008 and 2009,” said Bjarni Benediktsson, Iceland’s prime minister. “One can say that the capital controls were a necessary part of rebuilding the economy after the crash.”
Controls were imposed when the country’s three biggest banks – Glitnir, Landsbanki and Kaupthing – collapsed at the height of the global financial crisis to restrict money flowing in and out of Iceland. The krona (ISK) also fell in value.
The move, which was supported by the International Monetary Fund (IMF), helped stabilise the currency and the economy. However, the restrictions have also proved an obstacle for Icelandic companies with business activities abroad and made the country less attractive to foreign investors.
More than eight years later, the removal of capital controls completes Iceland’s return to international financial markets. The country is also updating rules on foreign exchange and making special reserve requirements for new foreign currency inflows.
Over the past year, the government and Iceland’s central bank, Seðlabanki Íslands, have already been lifting controls in what is described as an “incremental, measured process that focused on protecting the currency, addressing a balance of payments problem and tempering shocks to the Icelandic economy”.
“Iceland’s careful, measured approach to lift capital controls was developed and approved with domestic and international support,” said Benedikt Johannesson, minister of finance and economic affairs.
“As a result of this structured plan, our diversified economy is larger than ever before and expected to continue to grow at a robust pace this year.”
Johannesson added that Iceland will now examine whether it needs to change its currency model. A group of experts will report before the end of the year whether the country should maintain the current course or take steps “to stabilise its currency”, including pegging it against the euro.
The combination of a tourism boom, strong investment by business and a robust housing market saw Iceland’s economy grow by 7.2% last year. In the final quarter of 2016, gross domestic product (GDP) was up by 11.3% year-on-year.
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