So, our poor tattered króna was gingerly placed in the financial waters today … and miraculously, it floated! As opposed to sinking like a stone and coming up in, say, China!
By the end of the day, it had strengthened by eight percent.
Yes yes, there’s a long way to go, but still – that’s something.
Oh, and the Iceland Symphony Orchestra was nominated for a Grammy today in the Best Orchestral Performance category. Nice one!
And now if you’ll excuse me, I have a date with Zadie Smith. In bed.
THE TEMPS EVEN CRAWLED UP OVER THE FREEZING MARK
It started off cold and windy, but improved steadily as the day went on. EPI and I went to a fantastic exhibition opening down in the oldest building in Reykjavík [in Aðalstræti] where they’re showcasing some amazing arts and crafts design pieces – if you’re in town, I’d definitely recommend stopping by. I would so happily have bought everything on display [except maybe the lights made out of fish] and, really, if you’re a zillionaire [or just earn your money in any currency other than Icelandic kronur - same thing these days] you should really go and stock up on gifts. For yourself. My sister-in-law has some beautiful cushions that she’s selling there and I would definitely start with those. Anyway. Right now it’s “fair” according to Yahoo weather, temps 0°C [32F], sunrise was at 10:54 am, sunset due for 3:41 pm.
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{ 24 comments… read them below or add one }
It’s nice to read some good news here for a change!
Good news! I couldn’t help but notice the headline to the right stating that the sale of condoms is down in Iceland since the start of the kreppa, as compared to other Western nations. At first glance, I thought it said condos… I guess there may be a kreppa baby boom!
Hi Alda,
That’s good to hear !
I see you’ve settled down to a nice read! Could you recommend any good Icelandic novelists whose books have been translated into English? I feel in the mood to try some Icelandic novels! At least it’ll boost the royalty to the author a bit!!
Yes, it’s good news that the kroner rose in the artificial market within which it has been floated. It shows some internal confidence within Iceland in the kroner. But remember that the exchange rate is still approximately a third lower in all other unrestricted international markets than it is within that artificial market. That large difference seems to be an elephant in the room…
Good news on the job-creation front too it appears!
Thanks, everyone.
Andrew – shocking factoid: I hardly ever read Icelandic novels, so I can’t be of much help. People really like Arnaldur Indriðason’s books (crime stories) and he’s the most successful Icelandic author to date … I read one of his books, but didn’t finish it (I’m notoriously hard to please on the literary front). I did read one Icelandic novel this year, though, which is set to be published in English translation – Himnaríki og helvíti (Heaven and Hell) by Jón Kalmann Stefánsson. It was excellent prose and very atmospheric, although not much happens in the book. – Maybe other readers can offer some input?
James – it’s krona.
My bad… I just checked and discovered the distinction that Iceland and Sweden have krona, but Denmark and Norway have krone. An Icelandic witch has pulled my pants down and is spanking me…
If Zadie Smith can’t cheer you up, then I don’t know what can. On that though, maybe I ought to read “White Teeth” again. (“What is the What” by Dave Eggers also a good read – and surprisingly not as depressing as you’d think considering the subject matter.)
I’ve read some of the crime writer’s novels, didn’t like them much.
But can I just say, what about Halldor Laxness’ stuff? Specially ‘Independent People’. I am on my 4th reading, it’s wonderful! And I bought it in Akureri so it’s even more special.
And glad that your economy is on the upturn!
What does that mean for Christmas? Ah, it will come again next year.
I’m not quite sure what caused this sudden demand for the Icelandic krona leading to the rise of the rate. It can’t have been me when I changed some euros into kronas just yesterday
Concerning the krona much is certainly about trust and therefore it`s good that there isn’t a further slide downwards right after refloating. But I wonder if they are burning the IMF-money right now or if they are applying some new tricks in this pretty small krona-market. It doesn’t quite match the news about the downgrade in rating.
Apart from that thanks for the tips about the craft market. I was just planning to buy some more Icelandic Christmas presents – aside from Skyr and Brennivin. So, it`s a good idea to have a look at the exhibition and buy some stuff , even though it will be 15% more expensive than some days ago – the profit going to Davíð….
“I’m not quite sure what caused this sudden demand for the Icelandic krona leading to the rise of the rate”
Ok,
There is only three banks trading in the ‘international float’, all of them owned by the Icelandic government. Their very existence depends on a strong Krona. You can only sell Euro on this market if you need the currency for importing goods, nothing else.
The’ floating rate’ only applies within Iceland. The European Central Bank mid rate is 290 euro, based on the last, real market price.
In other words, this ‘float ‘ is yet another ridiculous farce by the Icelandic government.
You can only sell Euro on this market if you need the currency for importing goods, nothing else.
Surely you mean buy Euro. And as of yesterday currency restrictions have been lifted somewhat so the public can buy foreign currency for up to ISK 500,000.
I picked up and read Indriðason’s latest translated work Arctic Chill when last in Reykjavik (and the weather that week was freezing so it set the mood well!). Definitely one of his better books. And a few colleagues in Iceland strongly recommended Independent People so that’s likely next…
Peter is correct- the krona market is a completely artificial instrument set up and controlled by the Icelandic government. In real world the current rate is 295 to the euro.
There is no true float – just more feel good propaganda (apparently successful) from the Icelandic government and bankers.
@ peter & kristjan: yes, the market is artificial. yes, it’s feel-good propaganda. i am glad you have realised that the value of ALL currencies in the trading market are defined by the subjective view of their worth. if believing that the kronur’s value has increased, actually increases the value even a LITTLE BIT, it is a good thing. now, if you just want to be a bitter sourpuss, how about snarling at the euro? it’s value is way too high in comparison to the GBP, the ISK, and the USD. fair is fair, y’know?
peace
doug
austin, texas
Doug – you rock, you know that? One of you is worth about a zillion of the Kristjans of this world. How’s that for valuation?
Talking of currency, I will be flying to Iceland very soon and… does anyone know if would I get a better GBP-to-ISK exchange rate for cash at the London airport than in Iceland? There was very little difference in the past, but I’m now wondering whether GBP-to-ISK cash conversion in Iceland is at an international rate or the internal artificial market rate? Thanks.
Good news is good news.
James: You first might want to check whether Heathrow will be handling ISK to begin with. I could not change my leftover krona at Glasgow Airport a month ago as the kiosks were no longer accepting them. Hope that’s no longer the case, and very pleased to read about the krona jump! A little will go a long way!
maja – indeed. And it is especially good news to those Icelanders who have loans or mortgages in a foreign currency and who now see their payments decrease by one-fifth from what they were a few days ago.
This is a typical Haarde farce. That wasn’t international trading at all. The króna has been traded internationally for weeks, but at very low rates (both in exchange rates and volumes of trade). When the ECB started requoting reference rates on 6 November, the króna jumped by 48.8% in a single day (although only to a rate of 205 to the euro, whence it has since declined).
Yesterday, the Icelandic FOREX market reopened “properly” for the first time in nearly two months. It has three market makers, all of them owned by the Icelandic government! The Icelandic government can choose any exchange rate it likes in the short term, so long as it has the powers to order the banks to sell at that rate! The European Central Bank refused to set a reference rate for the króna yesterday or today, given the smoke-and-mirrors farce in Reykjavík.
All that is happening is that the Central Bank of Iceland, instead of selling its reserves at 187 krónur to the euro, is giving up the chance of increasing its reserves by letting its potential foreign currency income be sold 160 to the euro. Trading is very thin at those prices, as even the Icelandic banks admit, so I guess Iceland isn’t losing TOO much money for Geir Haarde’s ego trip, not this time and not yet.
Dec. 4 (Bloomberg) — Iceland had its foreign and local currency ratings downgraded by Moody’s Investors Service after the government was forced to pile up debt in an effort to revive the economy.
Moody’s downgraded the foreign and local currency ratings of Iceland to Baa1 with a negative outlook from A1, the agency said in a statement today.
“The downgrade reflects Moody’s view that the Icelandic government’s financial strength has been significantly damaged by the banking and currency crisis,” Kenneth Orchard, a senior analyst at Moody’s in London, said in the statement.
Iceland last month got approval for an International Monetary Fund-led loan worth as much as $5.3 billion. The country will be granted an additional $6.3 billion from the U.K., Germany and the Netherlands to cover deposit guarantees at failed Icelandic lender Landsbanki Islands hf. That means the island’s population of about 320,000 must shoulder debt worth more than $11 billion.
The currency has lost about two thirds of its value this year. The krona gained 4.8 percent against the euro to trade at 178.26 as of 1:19 p.m. in Reykjavik. Offshore, the krona traded at about 330 per euro earlier this week, according to TD Securities in London.
The central bank said it returned the currency to a partial free float today after it last week imposed capital restrictions preventing foreigners from exiting krona-denominated investments.
Debt
Most Icelanders have car loans in foreign currency, while soaring inflation, which may surge as high as 75 percent in coming months according to Danske Bank A/S, means households’ index- linked mortgage payments will jump.
“The impact of the crisis on the economy, the restructuring of the banking sector and the task of stabilizing the currency will force the government to assume sizeable amounts of debt that will weigh on the public sector balance sheet for many years,” Orchard said.
Loans taken on by Iceland’s government will bring national debt to 109 percent of gross domestic product by the end of next year, the government estimates.
The country’s three biggest banks failed under the weight of their debt in October, precipitating the collapse of the currency and sending the economy into a recession. Gross domestic product may contract as much as 10 percent next year, the IMF estimates.
Moody’s also cut its issuer rating and local currency bond ratings on the state-backed mortgage lender, the Housing Financing Fund, to Baa1 from A1, it said in a separate statement today. The outlook on the ratings is negative, it added.