Iceland’s highly indebted banking sector collapsed in October, taking with it the wider economy and the crown currency.

– Iceland attempted to introduce a currency peg — which survived less than a day — before imposing stringent capital controls restricting foreign exchange purchases to those for essential items such as food, fuel and medicine.

– The toughest controls were later relaxed, with new rules set out in November 2008. The central bank said in May that circumstances did not yet allow for the dismantling of capital controls, though progress had been made towards allowing the gradual and systematic easing of controls in the future.

– A gulf remains between the value of the Icelandic crown in the effectively state-controlled local market  of around 174/euro and the barely traded offshore market  which values it at closer to 205/euro.

– Moving capital out of the country in connection with the sale of foreign investments is prohibited. Investing in securities, investment funds and money market instruments denominated in foreign currency is prohibited. However, those who held such investments before the rules were introduced are allowed to reinvest.

– All foreign currency acquired by domestic parties must be submitted to a domestic financial undertaking within two weeks.

– Borrowing and lending between domestic and foreign parties other than transactions with goods and services may not exceed 10 million Icelandic crowns per calendar year. The loan period must be for at least one year.

– Movement of capital for gifts, subsidies or other purposes in amounts exceeding 10 million crowns per calendar year is also prohibited.

From Reuters

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