Iceland considers pegging krona to euro or pound: FT

FRENCH PRESS AGENCY - AFP
REYKJAVIK
Published 03.04.2017 23:02

Iceland is planning to peg its krona to another currency, possibly the euro or pound sterling, to stabilize its fluctuating exchange rate, its finance minister told the Financial Times on Monday.

The Icelandic currency is booming as a result of the island's spectacular recovery after the 2008 economic collapse, which forced authorities to nationalize three failing banks and impose capital controls.

When these controls were lifted in March, analysts hoped the krona would depreciate.

Instead, a number of factors have driven the currency higher, such as booming tourism, robust consumption and comparatively high interest rates, which are attracting investors. Iceland is basking in good times right now: Alongside the explosion in tourism, the fisheries sector is thriving, and the economy grew by an impressive 7.2 percent in 2016, with 11 percent in the last quarter alone.

The one dark cloud is its currency, the krona, which hit its highest level in almost a decade in early March.

"Is the status quo untenable? Yes. Everybody agrees on that. We'd like to have a policy that would stabilize the currency," Finance Minister Benedikt Johannesson told the Financial Times.

The Icelandic krona should therefore be pegged to a strong currency for advantages comparable to those of Denmark, which has long bound its kroner to Deutschemark and then to the euro, according to Johannesson.

In an interview with AFP in early April, Johannesson said that the appreciation of the krona was "one of the things that worry (him) the most in the Icelandic economy."

The rise in the krona against the pound or the euro is of particular concern to the fishing sector, which exports almost three quarters of its products to Europe.

In one year, all foreign currencies have declined against the krona, with sterling falling by 22 percent, the Swedish krona by 16 percent and the euro by 15 percent.

One euro is worth about 120.9 kronor at current prices.

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