Central Bank of Iceland offers to purchase euros and Icelandic krónur
The Central Bank of Iceland is offering to purchase euros in exchange for Icelandic krónur for long-term investment in the Icelandic economy, or in exchange for payment in Treasury bond series RIKS 33 0321. Furthermore, the Central Bank of Iceland advertises herewith for bids on the sale of Icelandic krónur for cash payment in foreign currency. The three auctions are an element in the removal of restrictions on movement of capital as set forth in the Bank’s capital account liberalisation strategy of 25 March 2011, and in the Bank’s Terms of foreign exchange transactions according to the Investment Programme for capital account liberalisation, dated 18 November 2011, with subsequent amendments.
The Central Bank is offering to purchase up to a maximum of 100 million euros in the two foreign currency auctions combined. The auction amount is subject to the reservation that it is a joint amount for both auctions and may change accordingly.
In the króna auction, the Central Bank is offering to purchase 25 billion krónur in return for payment in euros. Market makers in the interbank foreign exchange market are invited to act as intermediaries in the transactions.
The Central Bank reserves the right to raise or lower the above-specified auction amounts.
Concurrent with the auctions, the Central Bank, on behalf of the Treasury, is offering to buy back króna-denominated Treasury bonds maturing before end-May 2013 (see the press release from Government Debt Management in the attachment).
Specified primary dealers in the bond market will act as intermediaries for transactions in the auction involving payment in Treasury bonds. A list of these primary dealers can be found on the Central Bank website. Financial institutions that have concluded a collaboration agreement with the Central Bank of Iceland may act as intermediaries (see list below) and will handle investors’ applications for proposed participation in the auction according to the Investment Programme. The auction is open to investors whose applications for participation in the Investment Programme have been approved.
Bids shall be submitted no later than 28 March 2012. Further information on the three auctions can be found in the Terms of Auction.
The objective of these measures is to sell Icelandic krónur for foreign currency to parties that have decided to invest in the Icelandic economy or in Icelandic Treasury bonds for at least five (5) years. As such, they contribute to the acquisition of economical long-term Treasury financing and thereby reduce the Treasury’s refinancing need, as well as attracting foreign capital to the country for long-term investment, thus facilitating the removal of the capital controls.
The auction for the purchase of krónur is intended to enable investors to sell their ISK assets in a structured manner if they so choose. The banks’ liquidity is strong enough to tolerate the movement of the krónur that the Central Bank is offering to purchase, and the above-mentioned repurchase of Treasury bonds diminishes the potential side effects of those transactions on the bond market.
According to the Central Bank auction calendar, further auctions are scheduled for 9 May and 20 June.
Further information can be obtained from Már Guðmundsson, Governor of the Central Bank of Iceland, at tel: +354 569-9600.
Terms of Auction for the purchase of foreign currency by the Central Bank of Iceland in exchange for Treasury bonds. Transaction date: 28 March 2012 (PDF document)
Terms of Auction for the purchase of foreign currency by the Central Bank of Iceland according to the Investment Programme. Transaction date: 28. March 2012 (PDF document)
Terms of Auction for the purchase of Icelandic krónur by the Central Bank of Iceland in exchange for foreign currency. Transaction date: 28 March 2012 (PDF docuument)
Government Debt Management press release on repurchase of Treasury bonds
Central Bank of Iceland capital account liberalisation strategy, dated 25 March 2011
Central Bank of Iceland Terms of foreign exchange transactions according to the Investment Programme for capital account liberalisation (first published 18 November 2011)
Press release on the Investment Programme, dated 18 November 2011 (published 19 November 2011)
March 14, 2012