A double economy is a reality in Iceland

The currency restrictions sanctioned by law when the economic disaster struck are still in place. Even though we are exporting more as a nation, and importing less, the Icelandic krona is still falling and weakening.

I wrote about this in april. The fishing industry is suspected in this matter. The Financial Supervisory Authority in Iceland, under new leadership, has at least eight different cases under investigation for breach of the emergency currency restriction laws. The investigation will be hurried as much as possible.

The Central Bank of Iceland has the fishing industry companies under investigation. The aluminium companies have not been investigated yet but that is said to be in the pipelines. According to media reports there are substantial amounts of money involved. Enough to keep the ISK from getting stronger, in a situation where all major economic theories say it should be getting stronger. The foreign trade deficit is positive, a rare thing but should make the ISK stronger.

The punishment for breaking the currency restriction laws is severe.

Alcoa the aluminium giant absolutely denies any abnormal currency trade on behalf of the company. The aluminium companies work with the Central Bank in currency trade, but all of them have certain licence to bypass the main rules when it comes to returning the currency back to Iceland. This restriction under rule nr.9 of the currency laws is particularly under scrutiny from the Financial Supervisory Authority.

As I wrote about in April the new addition to the emergency laws that took place then was specifically made to prevent any legal or illegal ways to bypass the laws, that would weaken the Icelandic Krona. Weakening of the local currency makes everything more expensive, the foreign debts that are incredibly high, will only get higher.

The IMF is believed to have said that the strengthening and rebuilding of the ISK is the key feature in the economical emergency plan they did with the Icelandic government.double standards

The danger is that there can be a double currency market. That actually happened before the April law addition. On a smaller scale the double market is perhaps starting to become a reality. The Blue Lagoon mineral Spa, a huge tourist place is pricing everything they sell Euros. The entry fee is 20 Euros. So the local population can’t go there any more because the price has doubled.

Most of the tourist industry is advertising all local prices in Euros and other import companies are doing the same. Heavy industry machines cost Euros now, not ISK.

Icelanders are being out-priced in their own home, and this looks like the early start of “the dollar stores” like the ones in cold war eastern Europe.

Restaurants are actually making Icelanders pay more than the foreigners like Fiskimarkaðurinn in Aðalstræti does. Whale watching is all in Euros, camping sites are out-pricing the locals as well.

A double economy is not good.


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