Chapter

ICELAND

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: September 19, 1983.
Exchange Arrangement
CurrencyThe currency of Iceland is the Icelandic króna.
Other legal tenderA commemorative gold coin with face value of ISK 100 is legal tender, but it does not circulate.
Exchange rate structureUnitary.
Classification
Pegged exchange rate within horizontal bandsThe external value of the króna is pegged to a basket of nine currencies: the Canadian dollar, the Danish krone, the euro, the Japanese yen, the Norwegian krone, the pound sterling, the Swedish krona, the Swiss franc, and the U.S. dollar. The Central Bank of Iceland (CBI) intervenes in the exchange market to keep the exchange rate within a margin of ±6% around the central rate. As of February 14, 2000, this margin was raised to ±9%.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketIceland has no organized forward market and the króna has no quoted forward exchange rate. However, forward contracts can be freely negotiated in all currencies.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payment arrangementsNo.
Administration of controlThe Ministry of Industry and Commerce (MIC) has ultimate responsibilities for imports and, in consultation with the CBI, for capital movements and foreign exchange regulation. The MIC implements the control on inward foreign direct investment. The CBI licenses the foreign exchange dealers on a commercial basis and sets the reporting requirements for statistical purposes and for implementation of control on inward foreign direct investment.
International security restrictions
In accordance with Executive Board Decision No. 144-(52/51)Yes.
In accordance with UN sanctionsIn compliance with UN Security Council resolutions, certain restrictions had been imposed on payments and transfers for current international transactions with respect to the Federal Republic of Yugoslavia (Serbia/Montenegro). Iceland imposes exchange restrictions against Libya in accordance with UN Security Council resolutions.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyAll accounts in domestic banks must be identified by name and identification number.
Held abroadResidents must inform the CBI on opening of bank accounts abroad.
Accounts in domestic currency convertible into foreign currencyn.r.
Nonresident Accounts
Foreign exchange accounts permittedBanks must report to the CBI the monthly positions of nonresident accounts. All accounts in domestic banks must be identified by name and identification number.
Domestic currency accountsYes.
Convertible into foreign currencyAll accounts in domestic banks must be identified by name and identification number.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresImports of goods and services are free, except when international agreements or provisions in the special legislation provide otherwise.
Negative listLive animals and certain other agricultural products require health certificates.
Open general licensesImports by tourists and foreign visitors are duty-free within general limits on the total, as well as on individual merchandise value, and quantitative limits are set on alcohol and tobacco by the customs authorities.
Import taxes and/or tariffsYes.
State import monopolyTobacco may be imported only under state trading arrangements.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasExports of military, fisheries, and agricultural products require licenses from the Ministry of Foreign Affairs and Foreign Trade.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instrumentsThe purchase of shares or other equity capital may be affected by laws on foreign investment in Iceland.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsForeign governments and other authorities are prohibited from issuing debt instruments in Iceland unless permitted by the CBI.
Bonds or other debt securities
Sale or issue locally by nonresidentsForeign governments and other authorities are prohibited from issuing debt instruments in Iceland unless permitted by the CBI.
On money market instruments
Sale or issue locally by nonresidentsYes.
Controls on derivatives and other instruments
Sale or issue locally by nonresidentsForeign governments and other authorities are prohibited from issuing debt instruments in Iceland unless permitted by the CBI.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentForeign direct investments in Iceland are regulated by a special law on foreign investment: (1) foreign investment is prohibited in the fisheries and primary fish processing industry, as only resident Icelandic citizens or domestically registered entities, where foreign ownership does not exceed 25%, may fish within the Icelandic fishing limit or operate primary fish processing facilities; this limit can be extended to 33% if the foreign investment in domestic entities does not exceed 5% of the total equity; (2) investments by foreign governments and public authorities are prohibited in Iceland; the MIC may grant exemptions from this restriction and restrictions that follow, which do not apply to residents of the EEA; (3) there are controls on the ownership or right to harness waterfalls and geothermal energy, where restrictions apply to investment in power production and distribution companies; (4) investments in domestic airlines may not exceed 49%; and (5) the above and other special laws also stipulate restricted conditions for residency of managers and majority of voting power in holding companies.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase locally by nonresidentsThe conditions to own real estate in Iceland are the following: (1) individual owners must be Icelandic citizens; (2) in the case of unlimited companies, all owners must be Icelandic citizens; and (3) joint-stock companies must be registered in Iceland, with at least 80% owned by Icelandic citizens, and all of the members of the board of directors being Icelandic citizens. Icelandic citizens must control the majority of the voting power at annual meetings. The same conditions apply if the real estate is to be leased for more than three years or if the lease agreement cannot be terminated with less than one year’s notice. However, a company that is granted an operating license in Iceland may acquire real estate for its own use as long as the license does not carry with it the right to exploit natural resources. Citizens of the EEA and other foreign citizens who have been domiciled in Iceland for at least five years are exempted from these restrictions. The Minister of Justice may grant others exemption from these requirements.
Controls on personal capital movementsNo.
Provisions specific to commercial banks and other credit institutions
Open foreign exchange position limitsThe CBI regulates the net foreign exchange position of the banks, particularly in the foreign exchange market.
Provisions specific to institutional investors
Limits (max.) on securities issued by nonresidents and on portfolio invested abroadPortfolio investments of pension funds are restricted to listed securities of organized markets within the OECD countries or elsewhere and with the approval of the Financial Supervision Authority.
Currency-matching regulations on assets/liabilities compositionForeign exchange exposure of pension funds is limited to 40% of their total assets.
Other controls imposed by securities lawsNo.
Changes During 1999
Exchange arrangementJanuary 1. The composition of the basket of currencies to which the króna is pegged was changed to reflect the introduction of the euro.
Changes During 2000
Exchange arrangementFebruary 14. The margin within which the CBI intervenes was raised to ±9% from ±6%.

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