Iceland’s central bank said on Saturday it would begin progressively lifting capital controls put in place a year ago after the global financial crisis toppled the country’s banking system.
The bank “has taken the first step in the sequenced removal of the capital controls by permitting inflows of foreign currency for new investments and potential outflows of foreign currency that may derive from such investments in the future,” said a statement.
“Investors are authorized, without restrictions, to convert into foreign currency the sales proceeds from assets in which they invest after Nov. 1, 2009,” it said. Capital controls were put in place on Nov. 28 last year to stabilize the economy in the wake of the financial crisis The central bank said in August that it had seen improvements in the country’s krona currency that would “probably” enable it to lift capital controls by November.
In June, Iceland cut its key interest rate from 13 percent to 12 percent, returning the rate to the level it was at before the global financial crisis crushed the country’s banking system.
The spectacular collapse prompted Iceland to take out a US$2.1 billion loan from the IMF.
Iceland’s previous prosperity had been heavily based on its robust banking sector and the country consequently suffered a major macroeconomic blow when its key lending institutions were laid low by the global finance meltdown.
In October last year, the government had to take control of the country’s three leading banks amid liquidity shortages. Their collapse outraged the general public, with many jobs lost and people losing some of their savings.
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