Iceland central bank for auctions to repatriate offshore currency

The Central Bank of Iceland is preparing to repatriate offshore krónur in a step towards relieving ongoing capital controls following the banking crisis.

Icelandic pension funds are going to offer up EUR 200 million for the central bank’s foreign exchange auction on 15th February, as reported by Morgunblaðið and Bloomberg.

The Central Bank of Iceland plans to buy euros from the 32 Icelandic pension funds, which it will then exchange in a separate auction for Icelandic krónur stuck offshore. Morgunblaðið cited Arnar Sigurmundsson, the chairman of the Icelandic Pension Funds Association, as the source of the information.

The auctions form part of the Central Bank of Iceland’s staggered withdrawal of the capital controls – the latest stage of which was announced in November. The scheme aims to to absorb the exchange rate shock caused by overseas parties getting rid of their krónur which they have been stuck with since 2008. It will do so by channelling the money into long-term investments in Iceland. Króna investors not wishing to take up the central bank’s programme will likely have to pay an exit fee, Bloomberg reports Central Bank of Iceland governor Már Guðmundsson as saying last November.

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