Aluminum Companies Capitalize on ISK Differentials Skip to content

Aluminum Companies Capitalize on ISK Differentials

Two out of three aluminum companies in Iceland trade with the Icelandic króna in foreign markets in such a way that they profit from the difference between the official exchange rate of the Central Bank of Iceland and the króna’s exchange rate abroad.

The aluminum smelter in Reydarfjördur under construction. Photo by Páll Stefánsson.

“Many companies have exemption from the [currency] restrictions, according to the 14th paragraph of the regulations,” Central Bank governor Svein Harald Oeygard told Fréttabladid. “But exemptions aren’t made so that companies can profit because of the regulations.”

This type of trade takes place, for example, in the following manner: Companies buy currency in a market in Europe where the exchange rate of the króna is more profitable. In this way these companies obtain more króna for each dollar in export revenue than if they had exchanged the currency in Iceland.

However, such practice is not illegal since the companies in question have exemption from the Central Bank’s currency regulations.

Both Alcan and Alcoa in Iceland confirmed that their companies had spent a low percentage of their revenue to purchase Icelandic króna abroad.

Nordurál – Century Aluminum, on the other hand, stated that all trade has taken place in Iceland and through Icelandic commercial banks.

Alcan has now decided to change the nature of its trade with the Icelandic króna. The company has contacted the Central Bank requesting that its currency trade only take place in Iceland from now on.

Click here to read more about the currency restrictions.

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