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Icelandic Króna keeps falling in value: Means you'll get more value for your Euros, Dollars 8560

13. mar 2023 21:11

The value of the Icelandic currency, the Króna, has been dropping on currency markets in recent weeks. Yesterday the value of the Króna fell 1.5% against the US Dollar and the Euro. The Króna has not been as cheap since August 2016. 

According to the Icelandic Central Bank the US dollar now equals 118.7 Icelandic Króna, while the Euro stands at 137.2 Króna. The depreciation of the Króna has been quite pronounced since the end of June, when the US Dollar stood at 106.3 Króna and the Euro at 123.8 Króna. This means that a traveler who visits Iceland today will get nearly 12% more Icelandic Króna when they exchange their Dollars or Euros in Iceland than had they visited in at the end of June.

This translates into a more affordable vacation.

The worst time to visit? Early summer 2017
The Icelandic currency collapsed in value following the 2008 banking collapse, losing more than 50% of its value in the fall of 2008. Following the crash the government of Iceland imposed capital controls to protect the value of the currency. After currency markets had stabilized the Króna the value of the Króna remained relatively stable and low, but fluctuated between 115 and 130 Króna against the US Dollar. 

After Iceland lifted the capital controls, with the last critical step taken in March 2017, the Króna began appreciating in value. Large inflows of foreign currency, primarily due to spending by foreign visitors, caused the value of the Króna to rise: There were now more Dollars and Euros chasing after the same quantity of Icelandic goods and services, bringing up their prices. At the end of May 2017 the Dollar had dipped below the 100 Króna mark.

The price of a vacation in Iceland in May 2017 would thus have been nearly a fifth higher, in US Dollars, than a vacation today, when the dollars stands at 118 Icelandic Króna.

Various reasons
There are many reasons for the drop in the exchange rate of the Icelandic Króna. Uncertainty about the financial health of the two major Icelandic airlines, WOW air and Icelandair have been named as possible explanations. If just one of the airlines, WOW air, would cease operations it could mean a major recession and 3% contraction of Iceland's GDP.

Read more: Bankruptcy of WOW air would lead to serious recession, GDP would shrink by 3%

Uncertainty about the outcome of coming wage negotiations between the labor unions and employers is another factor. The demands put forward by the major unions have been rejected as excessive by employers, while the unions, led by a cadre of younger, more radical labor leaders, have stressed that any contract must ensure the economic security of the lowest income groups.

Read more: Landslide victory for Socialist labor organizer to become leader of Iceland's second largest union

Exchange

Icelandic Exchange rate index past 12 months A higher index means more Króna are needed to buy a weighed basket of Iceland's main trading currencies. The Króna began dropping in value in late summer. Photo/M5

The value of the Icelandic currency, the Króna, has been dropping on currency markets in recent weeks. Yesterday the value of the Króna fell 1.5% against the US Dollar and the Euro. The Króna has not been as cheap since August 2016. 

According to the Icelandic Central Bank the US dollar now equals 118.7 Icelandic Króna, while the Euro stands at 137.2 Króna. The depreciation of the Króna has been quite pronounced since the end of June, when the US Dollar stood at 106.3 Króna and the Euro at 123.8 Króna. This means that a traveler who visits Iceland today will get nearly 12% more Icelandic Króna when they exchange their Dollars or Euros in Iceland than had they visited in at the end of June.

This translates into a more affordable vacation.

The worst time to visit? Early summer 2017
The Icelandic currency collapsed in value following the 2008 banking collapse, losing more than 50% of its value in the fall of 2008. Following the crash the government of Iceland imposed capital controls to protect the value of the currency. After currency markets had stabilized the Króna the value of the Króna remained relatively stable and low, but fluctuated between 115 and 130 Króna against the US Dollar. 

After Iceland lifted the capital controls, with the last critical step taken in March 2017, the Króna began appreciating in value. Large inflows of foreign currency, primarily due to spending by foreign visitors, caused the value of the Króna to rise: There were now more Dollars and Euros chasing after the same quantity of Icelandic goods and services, bringing up their prices. At the end of May 2017 the Dollar had dipped below the 100 Króna mark.

The price of a vacation in Iceland in May 2017 would thus have been nearly a fifth higher, in US Dollars, than a vacation today, when the dollars stands at 118 Icelandic Króna.

Various reasons
There are many reasons for the drop in the exchange rate of the Icelandic Króna. Uncertainty about the financial health of the two major Icelandic airlines, WOW air and Icelandair have been named as possible explanations. If just one of the airlines, WOW air, would cease operations it could mean a major recession and 3% contraction of Iceland's GDP.

Read more: Bankruptcy of WOW air would lead to serious recession, GDP would shrink by 3%

Uncertainty about the outcome of coming wage negotiations between the labor unions and employers is another factor. The demands put forward by the major unions have been rejected as excessive by employers, while the unions, led by a cadre of younger, more radical labor leaders, have stressed that any contract must ensure the economic security of the lowest income groups.

Read more: Landslide victory for Socialist labor organizer to become leader of Iceland's second largest union

Exchange

Icelandic Exchange rate index past 12 months A higher index means more Króna are needed to buy a weighed basket of Iceland's main trading currencies. The Króna began dropping in value in late summer. Photo/M5