Iceland to lift capital controls in place since 2008 crisis

Iceland's government on Monday launched a programme aimed at lifting the capital controls put in place to stabilise the economy during the country's 2008 financial crisis.

Capital controls restrict the flow of money in and out of a country. During Iceland's crisis, when the three biggest banks collapsed, they prevented foreign investors from taking their money out of Iceland.

But in recent years the capital controls have made life difficult for Icelandic companies with business activities abroad, and have rendered the country less attractive to foreign investors.

The centre-right government which came to power in 2013 promised to allow the free movement of capital, all the while guaranteeing the stability of the economy.

The lifting of the controls "may have a real impact on people's daily lives," Prime Minister Sigmundur David Gunnlaugsson told reporters on Monday.
Foreigners hold capital worth some 1,200 billion Icelandic kronur (8 billion euros, $9 billion). Without the capital controls, they would probably have tried to sell their holdings as soon as possible after the crisis, which would have sent Iceland's currency tumbling even further than it did.

The government said Monday it would place certain conditions on investors wanting to sell their holdings, including "stability conditions" and a "stability tax".

"The authorities' strategy prevents these assets from flowing into the foreign exchange market and thereby adversely affecting Iceland's balance of payments," the finance ministry said in a statement.

The one-off tax will hit those who want to sell shares inherited from the failed banks. They will pay 39 percent of the estimated value of the assets.

The tax is expected to bring in some 4.6 million euros to state coffers.

For holders of Icelandic kronur in foreign bank accounts -- an option Icelandic banks offered before the crisis -- the government has proposed three solutions: take part in auctions of foreign currencies, purchase long-term Icelandic state bonds in other currencies, or convert the money into another currency on a locked account.