Bloomberg 14 Mar 12: Iceland Tightened Krona Controls to Prevent Speculative Chaos

Iceland pushed through stricter capital controls yesterday to clamp down on speculative trading and support the krona as it seeks to emerge from its 2008 economic collapse.

“We were making sure that the controls wouldn’t be unwound in a chaotic manner which might lead to instability,” Arnor Sighvatsson, deputy governor at the Reykjavik-based central bank, said yesterday in a phone interview. Loopholes in the legal framework posed a risk that “was becoming too great and if we didn’t step in it could have become uncontrollable.”

Iceland tightened controls on inflation-linked debt and on creditors of Kaupthing Bank hf, Glitnir Bank (GLB) hf and Landsbanki Islands hf. The law, which was rushed through parliament after markets closed on March 12, is designed to avoid a krona sell- off as controls on other currency transactions are eased. It prevents the liquidators of the three failed banks from paying creditors in foreign currencies and blocks owners of Icelandic bonds from shifting annuity and interest payments into other currencies.

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