News

Progress of the Plan for Removal of Capital Controls

10/25/16

The Minister of Finance and Economic Affairs has, as provided for in Act No. 16/2013 of the Icelandic parliament Althingi, published a report on the progress of plans to remove capital controls. 

In June 2016, the Central Bank of Iceland held a foreign currency auction where owners of offshore króna assets could sell their assets in return for cash payment in foreign currency. The auction, which was part of the authorities‘ comprehensive capital account liberalization strategy of 8 June 2015, was the last in a series of auctions starting in June 2011 before the authorities began lifting capital controls on individuals and businesses.

On 11 October 2016, Althingi passed a bill, introduced by the Minister of Finance and Economic Affairs, amending Act No. 87/1992 on Foreign Exchange. With the Act, which is part of the authorities‘ capital account liberalisation strategy from June 2015, important steps are taken to lift capital controls in full. Controls on resident and non-resident individuals and legal entities will be markedly eased in two steps; first upon passage of the bill on 21 October and second on 1 January 2017. Upon the Act coming into effect, outward foreign direct investment became unrestricted but subject to confirmation by the Central Bank. Furthermore, investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment of foreign-denominated loans became permissible up to a ceiling of 30 m.kr. Individuals are also allowed to purchase one real estate per calendar year and the requirement that residents repatriate foreign currency has been scaled down. On 1 January 2017, the aforementioned ceiling will be raised from 30 m.kr. to 100 m.kr. and transfers of deposits will be permissible subject to the same ceiling.

Work on liberalising the capital account proceeds according to the authorities‘ strategy from June 2015, but the date for full liberalisation of the capital account is unknown. The authorities‘ strategy is in line with recommendations from the IMF on an integrated three-stage approach to capital account liberalisation. The Fund also recommends that the authorities‘ supervision and oversight of external trade and the financial market be strengthened along with the stages now being implemented. Full liberalisation and its timing depend on several things; for instance, asset portfolios must have adjusted to a desirable composition of domestic versus foreign assets, outflow pressures must be manageable, and the authorities must be given the scope to develop appropriate prudential tools.