The head of Iceland’s central bank has said that floating the krona without the use of controls is never likely to happen again.
The comments came via a Bloomberg interview with Sedlabanki governor Mar Gudmundsson, in which he said, “We’ve said that Iceland can live with the krona, but then we have to do this and that. And it may well be the case that we don’t like all the things we have to do. Then we have to consider other options. Another option is to join a large currency union.”
Gudmundsson went on to add that the smaller a country is, the harder it becomes to maintain its own currency.
The news comes as officials in Reykjavik continue to concede that the country’s capital controls, which are restricting the movement of some ISK 8 billion, will remain in place past the 2013 deadline.
Prime Minister Jóhanna Sigurdardóttir said, “We may have to extend the existing legislation on currency controls. We would at the same time need to strengthen the central bank’s regulatory framework.”
The controls were put in place following the country’s 2008 banking failure, which saw the collapse of Reykjavik-based Landsbanki hf, Glitnir hf and Kaupthing hf banks.
Pierre is correct. Joining the Euro would be a mistake for Iceland.
A better approach may be to keep the Krona but to, through legislation, fix its exchange rate to that of another major currency and then to adjust the exchange rate as needed. This reduces volatility due to a floating exchange rate, prevents Iceland from being tied to the fiscal policy of the currency owner, and still allows Iceland to adjust as required.
Hello!
Generally, year after year, inflation in Iceland is higher than the average of the core of the Euro area, therefore, do not join the euro zone, keep he króna.
If Iceland joins the Euro area and the inflanción in Iceland is higher than the average of core euro zone, Iceland will lose competitiveness, productivity, wages increase more and Iceland would have to devalue the currency being the Euro, is impossible, therefore, Iceland would have to do an internal devaluation style of what is happening in Greece, Portugal, Ireland, Italy and Spain: wages cuts, budget adjustments,…
If you do not want to see how Iceland is impoverished -if someday dazzle again after this crisis-, do not join the euro zone and keep the króna.
Euro is only designed for a group of countries with inflation, productivity, economic and productive structure similar: Germany and its satellites (Austria, Netherlands, Denmark, Finland, Luxembourg, Belgium, France). .
Even the current accounts of Belgium and Finland have been deteriorating since the two countries joined the Euro. And France is there, clinging to the first car and, with the tongue hanging out, with serious problems of competitiveness, wages, …, …
Sweden made the reforms and it could successfully join the Euro.
Or the European Union aims to be a copy of the USA or any jump in the air: money goes from richer states to poorer states because all are ONE.
And if for some causality, the monetary invention not jump into the air, the EU be composed of countries getting richer and poor countries growing, and this will lead to the break.
Of course, I believe that if Iceland takes the currency of the United States, Canada or Britain, would consider crazy.. people too arrogant to learn something!
There is so much uncertainty in the world right now that if you will not join the EU, please keep the króna!