During the three months which have passed since this step was taken in removing controls, close to ISK 5 billion (bn) have been deposited in bank accounts in Iceland and almost ISK 4.5bn have been invested in commercial operations. Over ISK 0.9bn have been used for share purchases and just over ISK 0.2bn to purchase real estate. The total of new investment entering the country during this period is therefore ISK 10.6bn. These funds are still in Iceland. according to figures released by the Central Bank of Iceland yesterday. According to the bank, this investment amounted to close to ISK 9bn in November and December, but only around ISK 2bn in January. 

Substantial amounts under the circumstances
Admittedly, it is difficult to say whether this inflow would have ended up in ISK if the above-mentioned step towards relaxing controls had not been taken. Nonetheless, the investment demonstrates faith in the Icelandic economy and is a welcome addition to the very limited FX market turnover. By comparison, the surplus on external trade in November and December last year totalled ISK 9.1bn. Since the introduction of currency controls late in 2008, the surplus on trade in goods and services has averaged ISK 26bn each quarter, and determines to a large extent the net flow on the FX market under the current controls regime. The above-mentioned ISK 10.6bn is therefore a sizeable and welcome addition. It could also be pointed out that total turnover on the interbank FX market was ISK 9.7bn during these three months since the change was made.

ISK strengthens during this period
Since its intervention on the FX market at the beginning of last November, the Central Bank has not been active on the market for the past three months. During this period, however, the ISK has strengthened by 2.4% on average against leading currencies. The EUR has dropped from ISK 185 to ISK 177, while the USD has risen from ISK 124 to ISK 126, reflecting EUR weakening against the USD, especially in January. ISK strengthening during this period is no doubt at least partly attributable to the above investment inflow. The first step toward removing currency controls therefore has clearly brought positive results.

Controls were also tightened
It must be added that, in tandem with this step towards relaxing controls in early November, the rules were also amended with the aim of closing loopholes by which controls had been bypassed. As a result of the amendments, for instance, offshore ISK trading practically evaporated. This has no doubt also made a major contribution to the ISK strengthening which has occurred during the interim period.

CDS spreads on Treasury debt drop

It should also be pointed out that these figures do not take into consideration the vehicles which were de-registered each year, i.e. including those re-exported. As a result a fair number of the newly registered vehicles last year were not actually taken into service in Iceland. If these are considered, the total number of new registrations in 2009 was only 2,593, according to statistics kept by the Motor Vehicle Industry Association.