Euromoney: Central Bank of Iceland close to ending capital controls

30.11.2017 Media Coverage

Allowing speculators to trade Icelandic króna again would reduce volatility, says Gisli Hauksson

In EurEuromoneyfretomoney, GAMMA Capital Management's Gisli Hauksson analyzed why the Central Bank of Iceland is likely to remove the final restrictions on króna trading quite soon. “The króna is volatile but I think that the problem would be reduced by allowing speculators to trade it again,” he says. “It is difficult to exchange opinions on the currency without speculators in the system. More speculation means more liquidity, which smooths out seasonality and reduces volatility, but since the capital controls were abolished earlier this year, liquidity has fallen sharply in the FX market, mainly due to the absence of speculators and also because the Central Bank has stopped intervening.”

The tourism industry and economy has benefited from currency moves as the collapse in the króna made visiting Iceland cheaper. “Right now, between a booming tourism sector and steadily rising consumption, it has grown between 4% and 5% this year. So even though the balance on goods is turning more negative, the current account is still significantly positive, which results in a positive trade balance and gives good support for the Icelandic króna alongside a large Central Bank FX reserve.”

The article was published by Euromoney on November 30th 2017