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Prospects for a Currency Board in Iceland

Author

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  • Mabie, Alexander

    (The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise)

Abstract

In October 2008, Iceland suffered the biggest banking crisis in history relative to the size of an economy. Its three main banks, Glitnir, Kaupthing, and Landsbanki, were not able to avoid the deterioration in global financial markets following the September collapse of Lehman Brothers. Ever since, many economists have questioned whether a floating currency issued by the Central Bank of Iceland (CBI) is the most suitable monetary system for the Nordic island, or if it is time for Iceland to abandon the kroná (ISK) and adopt a new monetary regime. This paper examines the prospects of introducing several alternative monetary regimes in Iceland, namely a currency board system. In doing so, it presents a comparison of each regime’s past performance in Iceland (if applicable) and elsewhere as well as each regime’s potential effects on exchange rate dynamics. Lastly, it explores what might constitute an exchange rate that would be sustainable for a currency board.

Suggested Citation

  • Mabie, Alexander, 2016. "Prospects for a Currency Board in Iceland," Studies in Applied Economics 45, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    • Handle: RePEc:ris:jhisae:0045
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    References listed on IDEAS

    as
    1. Beckerman, Paul, 2001. "Dollarization and semi-dollarization in Ecuador," Policy Research Working Paper Series 2643, The World Bank.
    2. Scott Sumner, 2014. "Nominal GDP Targeting: A Simple Rule to Improve Fed Performance," Cato Journal, Cato Journal, Cato Institute, vol. 34(2), pages 315-337, Spring/Su.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Iceland; financial crisis; currency board; dollarization; nominal GDP targeting;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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