Iceland Lacks Currency for Easy Exit of Krona Creditors

Iceland doesn’t have enough foreign exchange to allow the creditors of failed Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf to swap their kronur assets, central bank Governor Mar Gudmundsson said.

It’s “clear” that Iceland doesn’t have the means to exchange as much as 450 billion kronur ($3.8 billion) into foreign exchange, Gudmundsson said in a report published on the bank’s website today.

“A speedy release of those assets, e.g. in relation to composition agreements, can only take place” if creditors agree on a “considerably lower” rate than the current onshore exchange rate, he said.

Iceland imposed capital controls in 2008 after the three banks defaulted on $85 billion in debt. The banks’ winding up committees are lobbying to win exemptions from the controls as they seek to complete composition agreements to repay the 450 billion kronur of domestic-currency assets trapped by the collapse.

In total, about $8 billion has been tied up by the controls, Arion banki hf estimates.

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