The Investment Programme. A step in capital account liberalisation
In coming months, the Central Bank of Iceland will hold foreign exchange auctions in which it will purchase foreign currency in exchange for Icelandic krónur to be used for domestic investment, provided that the investment remains in Iceland for a long-term commitment period.
These transactions are an element in the removal of controls on movement of foreign currency; cf. the Central Bank capital account liberalisation strategy of 25 March 2011. The Central Bank’s aim with the transactions is to facilitate the removal of the capital controls without causing major exchange rate or monetary instability or jeopardising financial stability.
According to the Investment Programme, parties intending to invest in Iceland and that sell foreign currency at a domestic financial institution are permitted to participate in the Central Bank’s foreign exchange auctions, where they sell the Central Bank the same amount of foreign currency that they have sold to the financial institution concerned, provided that all of the funds will be used for domestic investment, according to further provisions in the advertisement on the Programme.
Investors that own offshore krónur and intend to invest them in the manner specified in the advertisement, and that sell foreign currency at a domestic financial institution in the above-described manner, will be enabled to transfer the offshore krónur to Iceland if the krónur have been owned continuously by the investor since 28 November 2008. The amount of offshore krónur that may be repatriated in this manner will be equivalent to the foreign currency sold by the investor to the domestic financial institution concerned, at the exchange rate resulting from the Central Bank auctions.
These transactions will take place through intermediaries that meet requirements concerning operating licenses and have concluded an agreement with the Central Bank of Iceland. The intermediaries will assist investors in applying to participate in the Central Bank auction, in accordance with the advertisement and the terms of auction.
The first auction in connection with the Investment Route will be advertised in greater detail when preparation is complete. Due to conditions in foreign capital markets, the Central Bank of Iceland auctions in which bids are requested for Icelandic krónur versus cash payment in foreign currency have not taken place for several months. These auctions will resume when the Central Bank considers that conditions warrant it.
Appendices:
Terms of Currency Transactions in accordance with the Investment Programme 18.11.2011
Report on capital accounts liberalisation strategy - 25 March 2011
Further information can be obtained from Már Guðmundsson, Governor of the Central Bank, and Þorgeir Eyjólfsson, Capital Account Liberalisation Project Manager, at tel: +354 569 9600.
No. 28/2011
18 November 2011