Understanding the Icelandic Króna: History, Evolution, and Modern Usage
The Icelandic króna (ISK) is the official currency of Iceland. While it shares a name with the Danish krone, the Icelandic version has a distinct history shaped by sovereignty, economic shifts, and significant financial milestones. Today, it remains a managed currency, overseen by the Central Bank of Iceland.
Key Facts
- Currency Code: ISK (ISO 4217)
- Subunit: The eyrir (plural: aurar) has been phased out of circulation.
- Central Bank: Seðlabanki Íslands (Central Bank of Iceland).
- Current Status: Iceland is not a member of the European Union and does not use the euro.
- Digital Economy: Due to high technology saturation, a vast majority of payments in Iceland are made electronically.
The History of the Króna
The roots of Iceland's monetary system trace back to 1874, when the Danish krone was introduced to replace the earlier Danish rigsdaler. Following the dissolution of the Scandinavian Monetary Union during World War I and Iceland gaining sovereignty from Denmark in 1918, the Icelandic króna began to emerge as an independent entity.
The first independent coins were introduced in 1922. This period also marked the beginning of an independent monetary policy, characterized by an initial 23% devaluation against the Danish krone. Throughout the early 20th century, the currency's value was managed through various pegs, including the British pound (1925–1939) and the US dollar (1939–1949).
The First Króna (1874–1981)
During this era, various institutions managed the issuance of money. The Landssjóður Íslands issued the first banknotes in 1885. Later, the Landsbanki Íslands took over the issuance of denominations of 5 króna and above in 1928.
In 1961, the Seðlabanki Íslands (Central Bank of Iceland) was established, taking over the issuance of paper money. These notes were manufactured in England by De la Rue.
The Second Króna (1981–Present)
High inflation led to a major monetary revaluation in 1981. This transition established the "new" króna, where 100 old krónur (ISJ) were exchanged for 1 new króna (ISK). This era saw the introduction of modern denominations, including the 5,000 króna note in 1986 and the 10,000 króna note in 2013.
The Disappearance of Subunits
For many years, the eyrir served as the subunit of the króna. However, due to inflation and changing economic needs, the use of coins worth less than one króna was phased out. In 2002, regulations were signed to ensure all financial claims be paid in whole króna only. By 2007, the eyrir formally ceased to exist as a subunit.
Modern Banknotes and Coins
Current banknotes feature prominent Icelandic figures and natural elements. For example, the 10,000 króna note features the poet and natural scientist Jónas Hallgrímsson and the Eurasian golden plover. While the 2,000 króna note is no longer in production, it remains legal tender.
| Denomination | Main Colour | Featured Figure/Theme | Status |
|---|---|---|---|
| 100 króna | Green | Árni Magnússon | Withdrawn from circulation |
| 500 króna | Red | Jón Sigurðsson | Current |
| 1,000 króna | Purple | Brynjólfur Sveinsson | Current |
| 5,000 króna | Blue-green | Ragnheiður Jónsdóttir | Current |
| 10,000 króna | Blue | Jónas Hallgrímsson | Current |
Economic Volatility and the 2008 Crisis
The Icelandic króna is considered a low-volume world currency, meaning its value can change rapidly against major currencies like the US dollar or the euro. This volatility was most evident during the 2008 financial crisis, which caused a collapse in the Icelandic banking sector.
During this period, the króna's value plummeted. In early 2008, the exchange rate was approximately 90 ISK per euro; by late 2008, it had dropped significantly, reaching as low as 340 ISK per euro before trade was temporarily suspended. This crash led to intense national debate regarding whether Iceland should adopt the euro to ensure stability.
The Euro Debate
While some Icelandic officials and citizens advocated for joining the Eurozone to mitigate volatility, the country has maintained the króna. Although Iceland applied for EU membership in 2009, that application has been frozen since 2013. As of 2018, authorities had no plans to unilaterally adopt a foreign currency.
Frequently Asked Questions
Does Iceland use the Euro?
No. While there has been significant debate regarding the adoption of the euro, Iceland continues to use the Icelandic króna (ISK) as its official currency.
Can I still use aurar coins in Iceland?
No. Coins with a value of less than one króna (aurar) were withdrawn from circulation, and banks have not accepted them since 2003. All financial transactions are now handled in whole króna.
Why is the króna so volatile?
The króna is a low-volume currency, which makes it more susceptible to rapid changes in value against major global currencies, especially during periods of economic instability like the 2008 financial crisis.
Is the 2,000 króna note still valid?
Yes. Although the Central Bank of Iceland no longer produces the 2,000 króna banknote, it remains legal tender and is still accepted for transactions.
How do most people pay for things in Iceland?
Due to extremely high levels of technology saturation and computer usage, most payments in Iceland are conducted electronically via debit cards, credit cards, or online bank transfers.