The upcoming auction is credit positive insofar as it gives investors whose money is currently trapped in offshore krónur an exit, if they so wish, and helps relieve some of the pressure that has built up on Icelandic domestic assets as a result of the capital controls, as reflected by a steep appreciation of the onshore exchange rate over the past two years. The timing is also prudent since the authorities waited to conduct the auction until they had sufficient foreign exchange reserves to both buy the trapped assets but still retain enough to fund the country’s potential external liquidity needs.
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