In Focus: The Króna and the Euro

icelandic króna isk

The Icelandic króna was introduced as currency when Iceland gained its sovereignty from Denmark in 1918, with the first coins issued in 1922. At the time, one Icelandic króna was equal to one Danish krone. Today, the Icelandic króna has been devalued to such a degree that you’d need 2,000 of the original króna for […]

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Richest 0.1 Percent Gets Richer

currency iceland

The wealthiest 242 families in Iceland saw their wealth grow by ISK 28 billion [$207 million, €186 million] last year. On average, each of these families gained ISK 116 million [$858,000, €772,000] in one year, Heimildin reports.

This group, the top 0.1 percent richest Icelandic families, has almost no debt, as their equity ratio stands at 98.4 percent. Each family owned on average ISK 1.5 billion [$11 million, €10 million] at the end of 2022 and owed only ISK 23 million [$170,000, €153,000].

Money attracting money

Although income inequality in Iceland ranks among the lowest in Europe, according to the Gini coefficient, wealth inequality remains a topic of debate. This recent data was reported by Minister of Finance Þórdís Kolbrún Reykfjörð Gylfadóttir in Alþingi as a response to an information request by Logi Einarsson, MP for the Social Democratic Alliance.

The data shows that the richest Icelanders earn most of their money by letting their money work for them. They invest in stocks and bonds, buy and sell businesses, and invest in property to be rented out or sold for profit. Therefore, nearly three quarters of the top 0.1 percent’s income was capital income. These earnings, which include dividends and profits from selling assets, are taxed at a lower rate of 22 percent, compared to the tax on wage income, which varies from 31.45 to 46.25 percent depending on the tax bracket.

In fact, 28 percent of all capital income in Iceland in 2022 went to these 242 families. If the group is widened to include the entire wealthiest top 1 percent, they received 46 percent of all capital income in Iceland last year.

Undervalued assets

Still, the assets of the top 0.1 percent are undervalued in these calculations. The data doesn’t include assets of Icelanders in pension funds and share prices are reported at their nominal value, instead of the market value which they could be sold at currently. The top 10 percent of wage earners last year owned 85 percent of all stocks held by households at the end of last year. These shares are worth a lot more than their nominal value indicates and, in all probability, the richer the family, the more shares it likely owns.

All in all, the wealth of all Icelandic households grew substantially last year, by ISK 1,624 billion [$12 billion, €11 billion] in total. The wealthier families received a disproportionally large share of this increase. Heimildin adds that for most Icelandic households, their wealth increase comes from rising property prices. Three quarters of Icelandic residential housing is held by people who own one property, generally the one they live in. For most people, this wealth could therefore only be realised by them selling their homes.

New Payment App to Launch in 2024

Smartphone

The Central Bank of Iceland is spearheading a new mobile payment app for smartphones to be introduced as early as fall of 2024, Heimildin reports. When up and running, the app should help lower prices and stabilise payment systems, according to Central Bank Deputy Governor Gunnar Jakobsson. Over 90 percent of transactions in Iceland are now made with payment cards.

Similar to apps in Denmark, Sweden and Poland

Icelandic financial institutions and the Central Bank have agreed on developing the peer-to-peer payment solution that would allow consumers to purchase goods and services without using the payment systems of VISA or Mastercard. The consumer could download this app to their phone and pay with a direct bank transfer. The service would be similar to MobilPay in Denmark, Swish in Sweden and Blik in Poland.

Prime Minister Katrín Jakobsdóttir is expected to introduce a bill requiring financial institutions to participate, which Alþingi will need to pass into law. The goal for the authorities is to increase the stability and security of payment systems in Iceland, with the possible side effect of bringing down costs of financial transactions in the country with a less expensive solution. As it stands, Icelanders spend more on credit card fees than their Nordic counterparts.

Market to dictate who benefits

Only two to three percent of payments in Iceland are concluded with cash payments, with the vast majority made with cards. Gunnar says that this split is unacceptable in the eyes of the Central Bank from a security standpoint. For example, a cyber attack on a service provider in November stopped payments for hours. He argues that a middle solution of simplified bank transfers would increase stability and also reduce the costs that consumers face for their everyday card use.

“It’s often hard to think of the whole picture, but if we manage to lower the cost of payment systems in the country, economics tell us that it should eventually lead to lower prices,” Gunnar told Heimildin. “Who benefits from lower prices, whether it will be the consumer or the provider of goods and services, is something that market competition will dictate.”

Ministry of Finance Opposed Hiring of Icelander for Nordic Editorship

An employee of Iceland’s Ministry of Finance opposed the appointment of Þorvaldur Gylfason, Professor of Economics at the University of Iceland, as editor of the Nordic Economic Policy Review, alleging he was too politically active for the post. Kjarninn reports that Þorvaldur believed he had been hired for the position, only for the offer to be withdrawn following a discussion between Ministries of Finance within the Nordic Council of Ministers.

Emails Suggested Þorvaldur Had Been Hired

Launched in 2009 by the Nordic Ministers of Finance, the Nordic Economic Policy Review is an annual periodical. In early November last year, Þorvaldur received an email from the Nordic Council of Ministers implying he had been hired for the position. “We very much look forward to having you and your expertise with us on the coming editions of the NEPR. And Kjell Nilsson (director at Nordreigo) will help you out with any further practical information for the editorship,” an email stated. In a letter to Þorvaldur, Iceland’s Ministry of Finance claimed he was never officially hired for the position, rather was one of several candidates being considered.

An email exchange later that month between a staff member of Iceland’s Ministry of Finance with a Finnish colleague shows the staff member stated “Iceland is not able to suggest or support Gylfason as editor […] but would rather like to propose an Icelander for the job at a later time than to suggest Gylfason now.” The Finnish colleague replied stating they were “really surprised” by the position Iceland’s Ministry of Finance was taking, adding that public information suggested Þorvaldur “would be a very good candidate.”

Ministry Based Opinion on Wikipedia Article

In their response, the Finance Ministry staff member stated that Þorvaldur was “politically active. He has been, and to the best of our knowledge still is, chairman of the Iceland Democratic Party. We don’t find it appropriate that such a politically active person, particularly someone who chairs a political party, is editor of NEPR.”

Þorvaldur did serve as chairman of the party when it was formed in 2013. It did not win a seat in parliament and he left the position later that same year and has not been active in politics since. Iceland’s Ministry of Finance has since apologised for the mistake, stating in a letter to Kjarninn that the information was based on Þorvaldur’s Wikipedia page, which had been out of date. Minister of Finance Bjarni Benediktsson has stated that he had not been informed about Þorvaldur’s candidacy for the position but “in this case it reflects my desire to neither nominate nor approve Þorvaldur Gylfason for this position. In fact I would have never conceived of the possibility and no one mentioned it to me.”

Þorvaldur has claimed that he still has the right to the editorship as the job offer was never officially revoked in writing. His lawyer has contacted the Nordic Council of Ministers stating Þorvaldur reserves all rights to claim damages from the Council.