An application with the Reykjavík District Court for independent assessment of the Icelandic economy, launched by two of the funds holding the majority of the Icelandic offshore króna, has been met by the Court. Originally, the funds had eleven requests; the Court granted three of them according the Icelandic daily DV.
The two funds claim the measures taken against the offshore króna holders this summer – effectively forcing them out at a great discount or freezing the funds at below-inflation interest rates – are harmful measures, utterly unnecessary in the booming Icelandic economy. They now want an independent assessment of the economy, in order to show that the Icelandic government could well afford more generous terms.
According to a recent decision by the EFTA Surveillance Authority the offhore króna measures were within the remit of the Icelandic government and did not break any EEA rules.
The measures no doubt had a sobering effect on foreign visitors but it the use of a new tool to temper inflows, announced in June this year that has had an effect: according to new figures released by the Central Bank, inflows into Icelandic sovereign bonds have completely stopped since June when the measures were put in place.
There had been some concern that the large inflows might jeopardise Icelandic financial stability as indeed it did in 2008 when capital controls were put in place exactly because of these inflows. Governor of Central Bank Már Guðmundsson said earlier this year that the renewed inflows, which the Bank would monitor, were a sign of trust in the Icelandic economy. Well, no worries – the measures in June stopped the inflows.
For earlier Icelog on the offshore króna issues please search the website.
Update: this piece has been updated as the earlier report re the effect on inflows was incorrect.
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