Amendment to Customs Act and Act on Foreign Exchange
News Announcement
On 28 November last year, the Icelandic parliament Althingi approved amendments to the Foreign Exchange Act intended to prevent major depreciation of the Icelandic króna (ISK). The Act gave the Central Bank of Iceland temporary authorisation to set rules limiting international capital movements, with the aim of restricting the outflow of foreign currency, for instance, by imposing obligations to repatriate foreign currency. In recent weeks, however, the ISK exchange rate has been sliding steadily, and there were strong indications that the objective of building up strong foreign currency reserves through mandatory currency repatriation might be in jeopardy. This is attributed primarily to the fact that exporters were not obliged to receive payment for their products in foreign currency. The amendment adopted yesterday is intended to plug this loophole in the legislation.
According to information from Statistics Iceland and the customs authorities, there are indications that the value of exports paid for in ISK during the period January to March 2009 was almost ISK 2 billion more than during the same period of 2008. The sharp drop in imports should be conducive to further ISK strengthening. The currency weakening therefore suggests that some exporters are receiving payment for exported goods domestically in ISK, which the purchaser has obtained, either directly or through an intermediary, at strongly discounted rates abroad. Such transactions have reduced the efficacy of the Central Bank's rules on foreign exchange.
The amendments to the Act on Foreign Currency and the Customs Act are intended to ensure the effective functioning of the acts and rules on foreign currency. The amendment adds a Temporary Provision to the Act on Foreign Currency, stipulating that exports of goods and services must be concluded in foreign currency. Following the amendment to the Customs Act, the price of exports recorded on export declarations must be in foreign currency and the enforcement of these provisions will be monitored. Both amendments will apply until 30 November 2010, which is the concluding date of the economic recovery programme agreed by Iceland and the IMF when it applied for a Stand-by Arrangement with the latter.