Iced! Iced…. well, yes, iced.

A quick backgrounder in foreign exchange trading. If you’re a bank and you deal in a non-local currency – say, an American bank dealing in pounds sterling – you need to have an account with a bank in the local country to clear the trade. So, our hypothetical American bank would need to hold an account with a local bank – say, Barclays or RBS – to clear their sterling trades.

On Monday, there were three major clearing banks in Iceland. Since then: Glitnir has been nationalised; Landsbanki has been nationalised; and today, the last remaining bank Kaupthing has been nationalised. It’s now effectively impossible to trade the Icelandic krona, because there are no banks left who can be trusted to clear the trades.

“Effectively the krona can’t be traded at the moment because there are no more banks to clear the trade,” said Mick Ankjaer, a foreign-exchange dealer in Copenhagen at Nordea, Scandinavia’s biggest lender.



Even more alarming:

“Iceland is bankrupt,” said Arsaell Valfells, a professor at the University of Iceland. “The Icelandic krona is history. The IMF has to come and rescue us.”

But even more alarming:

Brown Threatens to Freeze Icelandic Assets in U.K. (Update1)

By Robert Hutton

Oct. 9 (Bloomberg) — Prime Minister Gordon Brown said the U.K. may freeze the assets of Icelandic companies, escalating a dispute over who should compensate British savers with deposits caught up in the collapse of the island’s banking system.

“We’re freezing the assets of Icelandic companies in the U.K. where we can,” Brown told BBC radio today in Birmingham, England. “We will take further action against the Icelandic authorities wherever this is necessary.”

Strap yerselves in.

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