Some very, very good news out of Iceland. This is from a press release from the Icelandic Ministry of Finance:
Individuals’ and companies’ freedom to transfer funds to and from Iceland and to carry out foreign exchange transactions will increase greatly, according to the bill of legislation that the Minister of Finance and Economic Affairs will present before Parliament tomorrow.
The bill is part of the authorities’ capital account liberalisation strategy, introduced on 8 June 2015. With it, important steps are being taken to lift the capital controls in full. The bill has been prepared in accordance with recommendations from the International Monetary Fund (IMF), with economic stability and the public interest as guiding principles.
Read more on the details here.
In my view this is a decisive move towards the total liberalisation of capital and currency mobility in and out of Iceland. Finance Minister Bjarni Benediktsson deserves a lot of credit for getting this through.
I am very happy to see this and I am optimistic that this will have significantly positive effect on the long-term growth perspective.
The question of course is how the global financial markets will take this. Overall I believe that the Icelandic króna is trading fairly close to what we could think of a “fair value”, which should reduce the risk of currency outflows over the medium-term. In fact the free movement of capital will make Iceland significant more attractive as a destination for foreign direct investments. Furthermore, it should be noted that Iceland presently is running 5% current account surplus.
The graph below shows the real effective exchange for the Icelandic króna. The red line is the average value for exchange since 2000.
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