Export businesses choose to keep foreign currency in currency accounts rather than exchanging it to the Icelandic Krona. Exporters who have a choice do not side with the Icelandic Krona, Vilhjálmur Egilsson, secretary general of the SA-Confederation of Icelandic Employers told Fréttabladid.
The Icelandic Krona. Copyright: Icelandic Photo Agency.
Even if the law on currency restrictions stipulates that export companies are required to import currency, they are not obligated to exchange it into ISK, explained Ingólfur Bender, head of data analysis at Íslandsbanki Bank.
According to The Central Bank, last May Icelandic companies owned 173,5 billion ISK in foreign currency in so-called currency accounts in Icelandic financial institutions. Then, the amount had risen by an average of 15 billion ISK in the preceding three months. It must be kept in mind that since the amount is calculated in ISK its value influences the amount.
The Central Bank has not received information regarding the status of the currency accounts in June, July, and August, despite their grave importance in assessing the influence of the currency restrictions.
According to Egilsson, the currency restrictions themselves undermine exporters’ as well as others’ trust in the Icelandic Krona. They make them not want to exchange their currency into ISK, if it can be avoided.
The consequences of exporters not exchanging all their currency to ISK is that the Krona does not get stronger. A considerable reinforcement of the Krona due to a positive product and service balance is required but this has not been the case, said Bender.
In spite of this, it is not a given that the Government will toughen the currency restrictions, Bender also said. However, it is impossible to predict the consequences should people continue to circumvent the restrictions, or if the value of the Krona decreases.