Capital control legislation passed

A parlia­ment­ary bill lay­ing the ground for lift­ing the capital controls cur­rently in force in Ice­land has been passed dur­ing a late-nig­ht sessi­on of the Icelandic Parlia­ment (‘Alþing­i’) this even­ing.

Capital controls in their cur­rent form have been in place in Ice­land since No­v­em­ber 2008. They were put in place in respon­se to the collap­se of all three of the coun­try’s maj­or pri­vately ow­ned comm­ercial banks and the ensu­ing fin­ancial cris­is.

Bill quickly passed

The bill (on am­end­ments to Act No 87/​1992 on for­eign exchange, as am­ended), was passed with near un­ani­m­ity, with 56 of 57 MPs present vot­ing in favour.

Parlia­ment­ary sessi­ons on a Sunday even­ing are a rare occur­rence. Tonig­ht’s sessi­on was org­anised in or­der to reach a conclusi­on in the matter before the mar­kets opened tomorrow morn­ing.

Parlia­ment­ary procedure usually dicta­tes that such bills go to comm­ittee as part of the adopti­on procedure. This was not necess­ary in this case as the bill orig­ina­ted from the comm­ittee it­self (in this case, the Economic Affairs and Tra­de Comm­ittee) and the bill passed through Alþingi in just 47 minu­tes.

Toug­hen­ing controls before lift­ing them

This bill, the first of sever­al expected to be needed to fully lift Iceland’s cur­rency restricti­ons, actually toug­hens controls in preparati­on for their removal.

Un­til now, a looph­ole has ena­bled associa­ted comp­anies to get around controls and obtain for­eign cur­rency by me­ans of short-term loans between each ot­her. This bill closes that looph­ole.

The explanatory memor­and­um to tonig­ht’s bill states that “[t]he leg­islati­ve am­end­ments proposed in this bill are in­t­ended to address any possi­bilities of circum­vent­ing ru­les when capital controls are lifted, in or­der to sa­fegu­ard stability in exchange rate and mo­net­ary policy”.

More leg­islati­on on the way

It also recognises that “[t]he main problem with lift­ing capital controls is the risk of immedia­te capital out­flows. Hea­vy capital out­flow, as compared to the possi­ble in­flow, could once again lead to bal­ance-of-pay­ment problems and the depreciati­on of the Icelandic króna, ow­ing to one-si­ded pressure on the for­eign exchange mar­ket”.

Two more bills paving the way for the lift­ing of cur­rency restricti­ons will be presented to the parlia­ment­ary parties, the pu­blic and Alþingi tomorrow morn­ing.