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INVESTING/PORTFOLIO STRATEGIES

Iceland lifts restrictions on foreign investments for pension funds

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Central Bank of Iceland

The Central Bank of Iceland has lifted restrictions on foreign investment for pension funds in the country, effective Tuesday.

In an update on its website, the bank said rules have largely been lifted on foreign-exchange transactions and cross-border movement of domestic and foreign currency. The change means households and businesses will no longer be subject to restrictions under the Foreign Exchange Act, which covered FX transactions, foreign investment, hedging and lending activity.

The controls were put in place in 2008 following the country’s banking crisis.

“With the amendments, foreign investment by pension funds, funds for collective investment, and other investors in excess of the maximum amounts provided for in the Foreign Exchange Act, which until now have been subject to explicit exemptions by the central bank, will now be authorized,” said the notice.

The Central Bank of Iceland has made a number of amendments over recent years, slowly increasing the level of foreign investment permitted by pension funds.

The bank said it is now possible to make the changes because “the risk of balance of payments disequilibrium that could cause monetary, exchange rate or financial instability has diminished significantly in the past year,” said the notice. The bank’s foreign-exchange reserves have also “increased markedly in the past 12 months,” due to a current account surplus far-outpacing forecasts. “The outlook is for a continuing current account surplus, foreign liabilities have decline, and Iceland’s net external position is now positive for the first time in the history of measurements, all of which further reduce the risk of instability.” Conditions in the global economy are also currently favorable for liberalization of capital controls, said the notice.

Further details could not be learned.