Historical Sketch

In the 9th century began the Viking settlement of Iceland, and the island nominally became part of the Norwegian, later Danish-Norwegian kingdom. In 1814, the Danish-Norwegian Union broke apart, and the control over Iceland remained with Denmark from 1380. In 1874 Iceland attained internal autonomy, followed by full independence in 1918. During the German occupation of Denmark in World War II, Iceland was occupied by Great Britain and the United States. After the end of the war, the monarchy was abolished, and the Icelandic republic was proclaimed.

Monetary History Overview

The Icelandic internal autonomy of 1874 triggered the creation of the state-owned National Bank which took over responsibility over the monetary affairs. In 1886, paper money for the 1st Icelandic Crown was issued that circulated alongside the Danish currency. In 1902, another commercial bank obtained a privilege to issue paper money, which it did until its default in 1930. The Icelandic independence did not change the monetary situation, this was triggered by the economic crisis after the First World War. Briefly before Denmark restored the pre-war gold parity, the Icelandic Crown was devalued by around 18% and pegged to the Pound Sterling. During World War II, Iceland was occupied by United States troops. The Crown was devalued by another 18% and repegged to the US Dollar. The post-war economy was weak, and the Icelandic currency was devalued several times until the early 1970s, in total by more than 90%. In 1961, the new central bank took over money issuance but could not sustainably stabilize the Crown, either. In 1973, the exchange rate was floated, and depreciation continued at annual two-digit percentages until the mid-1980s. Beginning 1981, a currency reform was carried out and two zeros were cut from the currency. The 2nd Icelandic (New) Crown continued to decline in value, the rate, however, slowed down somewhat in the mid-1980s. The collapse of the Icelandic banking system in 2008 triggered a near to 50% downfall of the Crown. In the mid-2010s, the economic recovery had succeeded such that the Crown could make up a substantial part of the loss against the Euro.

Iceland joined the International Monetary Fund (IMF) on 27.12.1945 as a founding member.

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