The króna (plural krónur) (sign: kr; code: ISK) is the currency of Iceland. The króna is technically subdivided into 100 aurar (singular eyrir), but in practice this subdivision is no longer used.
The word króna, meaning "crown", is related to that of other Nordic currencies (such as the Danish krone, Swedish krona and Norwegian krone) and to the Latin word corona ("crown"). The name "Icelandic crown" is sometimes used, for example in the financial markets.
First króna, 1874–1981
The Danish krone was introduced to Iceland in 1874, replacing the earlier Danish currency, the rigsdaler. In 1885, Iceland began issuing its own banknotes.
The Icelandic króna separated from the Danish krone after the dissolution of the Scandinavian Monetary Union at the start of World War I and Icelandic autonomy from Denmark in 1918. The first coins were issued in 1922.
Iceland's first coins were 10 and 25 eyrir pieces introduced in 1922. These were followed in 1925 by denominations 1 and 2 króna pieces and in 1926 by 1, 2 and 5 eyrir pieces. In 1946, the coins' designs were altered to remove the royal monogram (CXR), following Icelandic independence from Denmark in 1944, when Denmark (but not Iceland) was occupied by Nazi Germany.
Starting in 1967, new coins were introduced due to a considerable fall in the value of the króna. 10 króna coins were introduced in that year, followed by 50 eyrir and 5 króna pieces in 1969 and 50 króna pieces in 1970.
The first notes issued in 1885 by the Landssjóð Íslands were in denominations of 5, 10 and 50 krónur. In 1904, the Bank of Iceland (Íslands Banki) took over note production and introduced 100 króna notes. In 1921, the Ríkissjóð Íslands began issuing paper money, with notes for 1, 5, 10 and 50 krónur.
In 1929, another bank, the Landsbanki Íslands took over issuance of denominations of 5 krónur and above, with the Rikissjod Islands continuing to issue 1 króna notes until 1947. The Landsbanki Íslands introduced 500 króna notes in 1935, followed by 25 and 1000 króna notes in 1957.
In 1961, the Seðlabanki Íslands became the central bank of Iceland and started issuing paper money, in denominations of 10, 25, 100, 500, 1000 and 5000 krónur.
Second króna, 1981–present
In 1981, the Icelandic króna was revalued, with 100 old krónur (ISJ) being worth 1 new króna (ISK).
Technically, the króna is still composed of 100 aurar, although, in practice, coins less than one króna have not circulated for many years. In September 2002, Davíð Oddsson, the Icelandic Prime Minister at the time, signed two regulations decreeing that all monetary amounts on invoices and financial claims should be stated and paid in whole krónur only and that coins with a value of less than one króna should be withdrawn from circulation. Aurar are still used for pricing certain shares on the Iceland Stock Exchange.
In 1981, coins were introduced in denominations of 5, 10 and 50 aurar, 1 and 5 krónur. These were followed by 10 króna pieces in 1984, 50 krónur in 1987 and 100 krónur in 1995. As of 1 October 2003, Icelandic banks no longer accept the 5, 10 and 50 aurar coins.
Icelandic banknotes are printed with the dates from which the legal basis of the currency derives. In 1981, notes were issued in denominations of 10, 50, 100 and 500 krónur on the law of 29 March 1961. 1000 krónur notes were introduced in 1984, followed by 5000 krónur notes in 1986 with the same law.
100, 500, and 1000 krónur were reissued in 1994 on the law of 5 May 1986. In the following year, a new denomination 2000 krónur was issued for the very first time. The 2000 króna note is subtly different from the other notes. For example, the underprint pattern extends all the way upward and downward, while the other denominations had white margins on every side. The Arabic numeral 2000 is printed in multi color on 3 of the 4 instances. And the numeral 2000 on the lower left corner of reverse is vertical. The "shadow" of the numeral is printed with SÍ in microprint.
The 22 May 2001 series saw more changes than mere date update. The underprint and microprint change of the 2000 króna note were incorporated. The 1000 and 5000 krónur notes also received metallic foils next to the portrait.
Notes of 100 krónur or less no longer circulate, as they have been withdrawn by the central bank. As of 2006, the vast majority of banknotes in circulation are of the 500, 1000, and 5000 denominations (these generally being the only notes dispensed in ATMs, for example). 2000 króna notes exist but are unusual and are at times referred to as "tourist money" by the local population. Their use never became widespread.
Iceland is not currently a member of the European Union and does not use the euro. However, an application for membership is in progress.
The Icelandic currency is a low-volume world currency, strongly managed by its central bank, with a high degree of volatility not only against the US and Canadian dollars, but also against the currencies of the other Nordic countries (Swedish krona, Norwegian krone, Danish krone and euro). For example, during the first half of 2006, the Icelandic króna ranged between 50 and 80 per US$. Prior to the currency's collapse in October 2008, the króna was considered overvalued; in July 2008, a Big Mac cost the equivalent of nearly six U.S. dollars, versus $3.57 in the USA.
At most shops electronic payment is accepted. Other currencies are very rarely accepted in Iceland. A notable exception is Keflavík International Airport (which has many transfer passengers), where the US dollar, euro and some other currencies are accepted by all merchants. Certain stores in downtown Reykjavík accept some foreign currencies.
The overall level of technological sophistication is noteworthy in Iceland. Iceland has, for example, among the highest per capita computer usage in the world (far higher than the UK or USA). The saturation of technology in Iceland has had ramifications in their monetary system; a very large percentage of all transactions in Iceland take place through electronic forms of payment, such as debit and credit cards and online bank transfers. It is also worth noting that the value of banknotes is relatively small, e.g. the largest denomination banknote is the 5000 króna note, while a mid-range dinner for two in Iceland, without drinks or dessert, can easily exceed 5000 krónur (ca. EUR 28 in June 2009). This effect may accelerate the Icelandic move towards a semi-cashless economy.
2008 financial crisis
In October 2008, the effects of the 2007/08 global financial crisis brought about a collapse of the Icelandic banking sector. The value of the Icelandic króna plummeted, and on 7 October 2008 the Icelandic Central Bank attempted to peg it at 131 against the euro. This peg was abandoned the next day. The króna later fell to 340 against the euro before trade in the currency was suspended (by comparison, the rate at the start of 2008 was about 90 krónur to the euro). After a period of tentative, very low-volume international trading in the króna, activity had been expected to pick up again throughout November 2008, albeit still with low liquidity, as Iceland secured an IMF loan. However as of January 2009 the krona was still not being traded regularly, with the ECB reference rate being set only intermittently, the last time on December 3, 2008 at 290 ISK per euro.
The Icelandic krona similarly fell in value against the US dollar, from c. 50 to 80 per dollar to about 110-115 per dollar; by mid-November 2008 it had continued its slide to c. 135 to the dollar. As of April 2, 2009, the value hovered around 119 per US dollar. Previously high costs for foreign tourists thereby dropped, which Iceland's tourism industry hopes to exploit.
Iceland and the euro
Theoretically the adoption of the euro could have several advantages. Adopting a stronger currency may help Iceland to "avoid the turbulence surrounding speculations in international financial markets". In addition, Icelandic economists listed several arguments in favour of the euro before the crisis. "In terms of growth potentials and welfare, the euro could be expected to bring lower long-term interest rates [...]. This would of course increase capital investment and labour productivity. The euro might lower consumer prices by facilitating a comparison with other euro countries." Because of the volatility between the euro and the króna, former Foreign Minister Valgerður Sverrisdóttir considered the idea that Iceland might dollarize itself into the eurozone without joining the European Union.
The opinion regarding the euro is mixed among Icelanders. An opinion poll on the matter of Iceland joining the European Union released on September 11, 2007, by Capacent Gallup showed that 53% of respondents were in favour of adopting the euro, 37% opposed and 10% undecided. Another poll produced for the Icelandic newspaper Fréttablaðið and released on 30 September 2007 showed 56% opposed to euro adoption and 44% in favour. In January 2008, a poll by the Icelandic Chamber of Commence put support for Iceland to abandon the króna for another currency at 63%. Additionally, a number of companies in Iceland such as Ossur, have started to pay their employees in euros or US dollars, mainly due the high inflation and high volatility.
The 2008/2009 financial crisis prompted further calls for Iceland to join the eurozone. In January 2009, one senior Icelandic official stated that due to the crisis "the krona is dead. We need a new currency. The only serious option is the euro." In March 2009, a report by Iceland's Minister for Foreign Affairs, Össur Skarphédinsson, considered three options: retaining the krona, adopting the euro without joining the EU and adopting the euro through EU membership. The report recommended the third option.
An economic study of the impact of the adoption of the euro by Iceland found that "the Icelandic krona acts as a barrier to international trade, and that by joining the EU and adopting the euro, Icelandic trade could increase by 60%".
In July 2009, the Alþingi narrowly voted to apply for EU membership.
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