Capital controls hindering growth: Iceland bank boss
Published 29/04/2015 | 02:30
Capital controls is the biggest legacy problem to Iceland from its financial crisis, the country's Central Bank governor said.
In a speech in Dublin yesterday, Mar Gudmundsson, inset, said the financial crisis that hit the country had cast a long shadow.
Iceland imposed capital controls in 2008 after a financial meltdown following the collapse of three major banks that brought the state to the brink of bankruptcy.
Now, after billions in foreign capital has languished in Iceland for six years, both the government and the central bank have made moves to lift controls.
In an address to the Institute of International and European Affairs (IIEA), Mr Gudmundsson said the controls had been "very helpful" in stabilising the economy, but now they had become an "obstacle" to growth.
"The problem is that there are very big obstacles to a speedy lifting of capital controls," he said. Mr Gudmundsson said the difficulties posed are "partly because the resolution of the third biggest bankruptcy in the history of mankind is taking place in one of the smallest countries in Europe."
The Icelandic authorities hope to have a plan finalised in the coming months as the economy is now in a strong enough position to withstand the change.
But to avoid its currency diving again, the authorities must find a way to let investors withdraw funds that are currently locked without provoking a stampede. Mr Gudmundsson has previously noted that through small and regular currency auctions the central bank had managed to reduce the amount of foreigners' money stuck in Iceland.
"We are these days working hard to solutions to these problems and they exist," he said.
To prevent a rush to the exit, the Icelandic authorities is looking at the possibility of an exit tax to prevent an exodus of funds.