Summary: Iceland wants to reintegrate into world financial markets. There is little precedent for adopting and abolishing full scope capital controls in the space of a decade, yet Iceland seeks to do precisely this. After the recent accords with the failed bank estates, economic conditions augur well for the liberalizing endeavor. Even so, what awaits is ultimately a leap into the unknown. Iceland is determined to press forward. Staff pointed to risks and challenges. Free capital mobility will bring benefits yet risks also abound. In the very near term, there are the “Brexit” risks. Then there is the concern that surging wages could overheat demand. Compounding this will be the challenges of seeking to tailor local monetary policy to local conditions and of maintaining financial stability in the face of potentially large and volatile cross border capital flows.

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