PRESS RELEASE FROM THE CENTRAL BANK OF ICELAND:
Because of the unusual circumstances that arose in the Icelandic banks’ operations in October, interbank transactions in foreign currency were interrupted. The three commercial banks had previously acted as market makers in that market in accordance with regulatory provisions on bid frequency, price formation, and other issues.
In response to the interruption in currency market operations, the Central Bank established an interim currency auction market, which was described in the announcement appearing on the Bank’s website on October 15. This new market includes a larger number of financial undertakings than participated in the previous interbank market, but these parties do not have market making duties. Prices and results of transactions are published daily on the Central Bank website.
In the view of the Central Bank, it should be possible to increase trading volume and strengthen price formation on the currency auction market. For this reason, exporters and other owners of foreign currency are particularly encouraged to offer it for sale on this market. They may do so by contacting financial undertakings that engage in transactions with the Central Bank[1] and asking them to intermediate in presenting their offers.
Off-market price formation obstructs healthy currency trading practice and undermines efforts to restore normal foreign exchange market functioning. In addition, off-market trading is non-transparent and entails potential risks for participants.
On Nov 4, 2008, Peter – London wrote:
> Has it? where exactly?
Google is your friend. Or whatever search engine you use. TIP: You have to click the Search button.
On Oct 31st I wrote:
>In 2009 we will see the first exploration licenses
>for oil and gas in the Dreki area (Dragon area) of
>the Jan Mayen ridge**.
>**http://eng.idnadarraduneyti.is/Publications/nr/2535
>
>There are not too many new oil fields being
>discovered, so good tax from oil revenues will
>likely be backing the ISK soon enough. That is not
>to include other things such as hydro power, and
>even water itself. Don’t underestimate the value
>of such commodities in the coming years.
“Norway and Iceland sign border treaty
2008-11-05
This week Norway and Iceland signed a treaty which outlines the framework of oil and gas exploration on the continental shelf between Jan Mayen and Iceland.
Norwegian minister of Foreign Affaires, Jonas Gahr Støre, says to Fiskeribladet Fiskaren that Norway has worked closely with Iceland in finding oil and gas resources on the continental shelf.
Iceland is planning to open areas in the north-eastern part of its continental shelf called the “Northern Dreki Area”, for oil and gas exploration.
“The treaty gives us predictability and a good framework for both government officials and commercial companies exploring the area,” says Støre.
A treaty from 1981 gives Norway the right to a 25 percent participation in a limited part of Iceland’s continental shelf. The new treaty clarifies better the terms in the 1981 agreement.”
British companies were certainly in line before, but now given Brown and Darling’s actions, I can’t imagine anyone other than Norway or Russia (maybe) getting a look in. Although Icelanders are fair, and if a UK company offered a good deal they might still consider it of course. But still, a massive opportunity lost for the UK.
*http://www.barentsobserver.com/norway-and-iceland-sign-border-treaty.4524106-16178.html
>>At the same time, the ISK has been appreciating in the off-shore market, with EUR being sold against ISK at 195 (well below recent trades of 275).
Has it? where exactly? I’d be interested in see that.
I did notice the ECB has a rate of 305 http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-isk.en.html
Who decided that, I don’t know.
Latest today (Tue Nov 4th):
“Off-shore and auction exchange rates moving closer
http://www.bonds.is/assets/files/lb286.htm
EURISK traded at 164 in the Central Bank’s currency auction today. This represents 2.4% depreciation from yesterday’s value of EURISK 160. The ISK has now depreciated by 8.5% since these auctions were first carried out in mid-October, with most of the decline coming in the last two auctions. Total volume in today’s auction was EUR 19.3 million. The large volume likely represents a pent-up demand following low volumes in recent auctions.
At the same time, the ISK has been appreciating in the off-shore market, with EUR being sold against ISK at 195 (well below recent trades of 275). The auction exchange rate appears, however, to be moving towards the off-shore rate in anticipation of the ISK’s eventual re-floating.
The IMF has delayed its decision on the Iceland programme until Friday, thus postponing the re-floating of the ISK, which we expect to take place soon thereafter.”
Nov 1, 2008, WTF replied to my post:
>Is that you Dr. Pangloss ?
Perhaps, perhaps not. But certainly I look like a Brobdingragian compared to the reputation gained by others for their posts here.
(Yes, I mean you Peter – London, amongst a handful of others.)
Peter – London wrote:
>Yes, the entire foreign exchange of the sedlabanki.
That actually made me laugh. The first worthwhile post from you, perhaps so far in your posting history here and at FT.com, et al.
“heh…short sellers trembling much?
Just wait a bit…youll get what’s coming to you.”
Yes, the entire foreign exchange of the sedlabanki.
“You don’t get to choose what the exchange rate is, unless you can throw billions of Euro’s at it to support it.”
You do if you want to impose it for internal perception purposes and are not interested in international trade, except for getting some tourists to continue to show up and pay an non-marketexchange rate. That might work for a while. It’s a very small country/economy and tourism may be able to bring in some real foreign currency.
“The short-term problem that the Icelandic Krona has is one of perception.”
Is that you Dr. Pangloss ?
Look, I’m with the crew that is shocked with how leveraged this tiny village/country of 350,000 or so was. But they will recover. When I don’t know. But it’s a highly literate population. Efficiently run place from what I’ve experienced. With an underlying work ethic. Eventually things will settle. Foreign investment will return.
i dont know how in the world can icelanders say ISK is worth 150/euro. 2bn will fly away and again they will have to come to imf. Take pain. let economy contractr by 50% or more. You are worse than aregntina.
heh…short sellers trembling much?
Just wait a bit…youll get what’s coming to you.
>The short-term problem that the Icelandic Krona has is one of perception.
You really are completely clueless aren’t you?
Well, lets see how your predictions go.. if the krona is ever floated.
““Iceland’s friends are the Nordic countries, none of whom are in the Euro.”
It would be great if the “experts” around here would at least check the facts; Finland is a Nordic country and is in the euro…”
Is Finland the “the guys who print Euros”
I don’t think ‘facts’ are being discussed here.
William Watson,
even at 150 ISK/EUR, the currency is ridiciously overvalued, putting iceland among most expensive places on earth. I doubt that fishing, hydropower and gas licences can support that valuation, which in fact would mean that icelanders are still among wealthies people on earth.
The short-term problem that the Icelandic Krona has is one of perception. And given the assistance it has received from Alistair ‘Honest’ Darling and Gordon Brown this month, is it really surprising that fundamental value will be ignored short term? I think not.
With the three largest banks in the country in receivership*, their assets now having to be sold are fire sale prices, and thus the short-term impairment of the image of the sovereign, i.e. the government of the Republic of Iceland, only loans in foreign currency to build up reserves will help short-term.
However, the credit record of the sovereign is impeccable by any standard, so despite today’s climate of frozen inter-bank lending, the government will get the loans it needs to back the currency for the time that the economy re-adjusts to the huge shock it has just experienced.
150 ISK to 1 EUR or even 130 ISK to 1 EUR is perfectly reasonable, mid-term, even if short term there are some ridiculous rates out there. Iceland’s currency will float again soon enough.
(*thanks to the actions of Gordon Brown and Alistair Darling as many readers here know the largest bank in Iceland was destroyed by the ‘transfer’, i.e. theft, of the majority of its UK assets and those held in trust for depositors such as for KSF (Isle of Man) Limited from subsidiary Kaupthing, Singer and Friedlander and their transfer to ING on October 8th.)
In 2009 we will see the first exploration licenses for oil and gas in the Dreki area (Dragon area) of the Jan Mayen ridge**.
**http://eng.idnadarraduneyti.is/Publications/nr/2535
There are not too many new oil fields being discovered, so good tax from oil revenues will likely be backing the ISK soon enough. That is not to include other things such as hydro power, and even water itself. Don’t underestimate the value of such commodities in the coming years.
Of course, one would hope that the turmoil in the world would turn people away from fiat currency back to ‘real money’ backed by silver, gold, etc. but I doubt that will be the case.
“Iceland’s friends are the Nordic countries, none of whom are in the Euro.”
It would be great if the “experts” around here would at least check the facts; Finland is a Nordic country and is in the euro…
“ISK will settle at around 150 to the Eur when people belive that it can be defended, Belive that EEC has includedd Iceland in the rescue fund package. ECB signs up to shelter Iceland and we are friends with the guys who print Euros. ISK will then find its own free rate without speculative issues. Shorting is a gamble that reflects ones view rather than a right to influence.”
LMAO.
“ISK will settle at around 150 to the Eur when people belive that it can be defended, Belive that EEC has includedd Iceland in the rescue fund package. ECB signs up to shelter Iceland and we are friends with the guys who print Euros. ISK will then find its own free rate without speculative issues. ”
Iceland’s friends are the Nordic countries, none of whom are in the Euro. Euro members Germany and Holland are nursing tens of billion of losses on loans to Iceland, why would they want to protect Iceland’s over inflated currency.
The ISK and Iceland’s over inflated value is a product of speculation by its bankers. When you remove the speculation and go back to the part of the GDP that produces goods with real value you come with a valuation 30% of what it was before.
“Indeed, I’m not saying you can choose the exchange rate of a floating currency. But you get to choose whether you want to put 90% (there is almost no house renting market in Iceland) of the population in the street, feeding them with only fish (importation being obviously too expensive).”
Well something will have to be done whereby the loans go into default and banks become landlords. Obviously if you have a car loan in foreign currency the car should go back.
I must admit I was completely stunned that banks have been giving out foreign currency loans in Iceland (and Eastern Europe). Its lending money to gamble on the currency markets, unbelievably risky and it should never be done even with a reasonably strong currency. Its very difficult to get a foreign currency loan in the UK, for instance.
With the worlds smallest floating currency.. its utter, utter madness.
The banks who gave out these loans, should be shot and made to deal with the problem
If the Icelandic people think that the Kr to the € is going to settle at 150kr they are surely living in LaLa land-Iceland let me spell this out to you “Your country is Bankrupt” its not going down, it is down!.There is not a Bank,financail institution or any major ( not some Pharama Comp from asia)big business in the world that is keen to do business with iceland.Until Iceland and Icelanders brush their ego’s to the side-and start realizing that things are not going to get better for a very long time( at least 4 years )they should start thinking about real solutions like prodution of goods-it is evident in times like these that countries that produce acutual “things,goods or products call it what you like recieve less of the brunt,than countries that outsource and create money elsewhere other than in their own countries.
ISK will settle at around 150 to the Eur when people belive that it can be defended, Belive that EEC has includedd Iceland in the rescue fund package. ECB signs up to shelter Iceland and we are friends with the guys who print Euros. ISK will then find its own free rate without speculative issues. Shorting is a gamble that reflects ones view rather than a right to influence.
Indeed, I’m not saying you can choose the exchange rate of a floating currency. But you get to choose whether you want to put 90% (there is almost no house renting market in Iceland) of the population in the street, feeding them with only fish (importation being obviously too expensive).
>>Problem with giving EUR at 300 or 400 ISK is that most icelanders have a housing loan in europe… not any would be able to afford for it if it goes twice the value they plan…
Yes, its going to be a big problem.
Problem with giving EUR at 300 or 400 ISK is that most icelanders have a housing loan in europe… not any would be able to afford for it if it goes twice the value they plan…
>>400 TWI or exchanging 350ISK for a euro is just not a viable solution for the country.
You don’t get to choose what the exchange rate is, unless you can throw billions of Euro’s at it to support it. Eventually any unsupportable fix will fail.
I am beginning to suspect the lack of any substantial loan offer is partly due to the unwillingness of the CBI to accept a truly floating exchange rate. Why lend so that the money can be blown supporting the currency.
Calm down cowboys. 400 TWI or exchanging 350ISK for a euro is just not a viable solution for the country. It would lead to a 150% inflation. Iceland are not willing to be the new Zimbabwe.
“Off-market price formation obstructs healthy currency trading practice ”
And closed market, fixed priced ‘trading’ is the sign of a healthy economy?
sedlabanki… not landesbanki.
Incompetent idiots still runing the landesbanki … what else can one say. First they fix the rate at 150/EUR and then complain that there are no participants.
No, invitations and paper proclamations will not help!
Off-market price formation is not “off market price formation”, it is obviously the free market alternative to your rigged auctions, which give false sense of security to icelanders.
I am sure there are plenty of possible participants, which would offer EUR at 300 or 400 ISK, as this is reasonable rate, at which the icelandic prices seem reasonable – in line with the country that is effectively bankrupt and hat to go begging the IMF for money.
Denial, denial…