Tuesday, March 17, 2009

The exchange rates of the Iceland crown

The exchange rates of the Iceland crown

Iceland currency is quite close to the dual exchange rate with the central bank that trades foreign currency to local banks at much lower price in comparison with international market rates. Last week the government of the country started to control the banking system of the country and has already put several restrictions on foreign exchange by carrying out everyday auctions intended to establish the value of country’s currency.

The last trades showed the rate of the crown at the point of 151 versus Euro and 112.69 versus USD. However the international trades show quite different rate of the crown setting it at the point of 275 crowns versus the Euro. Thus international trade in crown is still quite illiquid today.

However in case the currency of Iceland will continue to strengthen at the international financial markets despite any local decreases then the gap between two rates will cease. On the other hand the foreign reserves of the country is exhausting from day to day and so all the country can do now is only to provide foreign currency trade via local banks for several days.

This is the reason of the country dependence up to foreign investments that are most likely to come from International Monetary Fund or Russia with the last one quite ready to spend certain revenues from oil trade for foreign investment in spite of the economic troubles inside of the country.

So the Iceland is thinking now what help is better to accept the one from the IMF or Russian one. As for Russia it possibly tries to increase its influence at the international area after the war with Georgia. However the Iceland is the NATO member and it is still denying any opportunity of use of its former US airbase.

Furthermore, according to the experts Russia may also possibly tries to wait until it becomes clear whether the Iceland will get its non-permanent UN Security Council membership. The UN General Assembly

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