Iceland’s pension funds are to refrain from buying foreign currency for another three months, according to a decision by the country’s central bank today, extending the arrangement which started on 17 March.
Ásgeir Jónsson, governor of the Central Bank of Iceland, said: “It has now been decided to extend the hiatus by another three months, or until 17 September 2020.
“With this, the pension funds have once again demonstrated their commitment to supporting stability in the foreign exchange market,” he said.
The foreign exchange suspension for pension funds was originally agreed three months ago at the beginning of the COVID-19 crisis, in order to avoid adding to the downward pressure on the krona from the big fall in export revenues.
“It is clear that this hiatus has played an important role in maintaining macroeconomic stability during the shockwave that has struck the domestic economy in recent months,” Jónsson said.
Guðrún Hafsteinsdóttir, chair of the Icelandic Pension Fund Association (Landssamtök lífeyrissjóða, LL), also wrote a letter today to the lobby group’s members encouraging them to keep on with the currency buying suspension, following her meeting with Jónsson.
In the statement from the central bank, Jónsson said that in the past few years, Iceland had been transformed from a capital-importing country with a sustained current account deficit to a capital exporter with a large current account surplus – a shift he said was in large part down to the growth in pension assets, which had laid entirely new foundations for the maintenance of macroeconomic stability in recent years.
“This has certainly been of benefit to Iceland in the past few months,” Jónsson said.
Pension funds’ foreign investments in particular were very important in the long run, both for fund members and the nation as a whole, he said.
Icelandic pension funds have been focusing on re-building their exposure to foreign investment markets over the last four years after capital controls were finally lifted following their imposition in the island country’s 2008 financial collapse.
The governor of the Central Bank of Iceland said today foreign assets were important in order to diversify their risk and prevent pension benefit payments from having an adverse impact on the economy in the future.
“Furthermore, the pension funds’ foreign investments are necessary in order to maintain balance of payments equilibrium alongside a current account surplus, export-driven output growth, and job creation,” he said.
The bank said it appreciated the social responsibility the pension funds were demonstrating during the ongoing crisis, and that its cooperative relationship with the sector had attracted attention abroad and been mentioned explicitly in statements from international credit rating agencies.
“This cooperative relationship is dynamic in nature, in that it will be possible to respond quickly if conditions in the foreign exchange market change in a way that enables the pension funds to resume foreign investment and the associated foreign currency purchases,” said Jónsson.