Frozen Foolishness

From the Irish Times: Iceland fixes crown at different rate to market.

Having been untraded for days after it collapsed, Iceland's crown is moving towards a dual exchange rate with the central bank selling foreign currency to locals much cheaper than the international market rate.

Iceland's government took control of its banking system last week and has since imposed harsh foreign exchange controls, holding an auction every day to set the value of the crown.

Friday's fix valued it at 151 to €1 and 112.69 to the dollar, slightly weaker than yesterday's levels. But the Reuters matching dealing system showed the crown at almost half that value in international trade at 275 to the euro.

"What the government is doing is giving away foreign exchange locally at much cheaper than the market rate."

If the crown continues to strengthen internationally even while weakening locally, the differential between the two rates might disappear and reach equilibrium. Otherwise, with Iceland's foreign reserves dwindling, the analyst said it could only continue local foreign currency selling for days or a couple of weeks.

This is moronic. They are setting themselves up for a "second" crisis once their foreign reserves disappear.

What should any rational Icelander (individual or corporation) do?

Either convert to euros because the rest of the foolish taxpayers are financing you. Or play the roundtrip multiple times a day. Buy at the "official" rate and sell on the open market. Take your winnings and convert them to gold.

Incredible!

Well, no nation has managed to go bankrupt twice in a month but Iceland seems to be giving it the ol' college try.

This is dumber than dumb.