Banks’ Speculation against the ISK Necessary? Skip to content

Banks’ Speculation against the ISK Necessary?

Ásgeir Jónsson, director of the research department of Kaupthing Bank, stated that shorting the Icelandic króna had been necessary for the banks to project their capital position and that it had been undertaken with the approval from the Central Bank of Iceland.

Kaupthing headquarters in Reykjavík. Copyright: Icelandic Photo Agency.

Jónsson added that others should also have speculated that the ISK would depreciate, Fréttabladid reports.

Jónsson finds claims that the ISK depreciated because “crooks” had speculated against it or that shorting the ISK is “treason” peculiar.

The ISK’s exchange rate was too high because the Central Bank’s policy rate was too high in Jónsson’s opinion.

“In hindsight it is unbelievable, and truly unfortunate, how long the exchange rate of the ISK remained high despite an enormous trade deficit, rising foreign debts and the worsening credit rating for the state treasury,” Jónsson said.

“It involved how the period of expansion was extended, further foreign debt was accrued and the downswing became harsher as a result, Jónsson explained. “The nation simply lived beyond its means for too long by speculating on the ISK.”

Gylfi Magnússon, an associate professor of economics at the University of Iceland, said it is necessary to further investigate currency hedges. The Icelandic Financial Supervisory Authority (FME) investigated the depreciation of the ISK in spring 2008, but did not discover any illegal activity in relation to it.

Click here to read more about calls for a thorough investigation of bank operations, including on speculations against the ISK.

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