A Peg Could Work

This could be a solution to the severe currency crisis facing Iceland that I wrote about today. http://www.gregg.blog.is/blog/gregg/entry/885025/.  A peg is always difficult to maintain but a possible solution is to to use the IMF standby loan to bolster the Central Bank's foreign currency reserves, necessary to maintain any peg.  (Just ask Davið when he tried to peg the kronur with almost no reserves. That peg still remains the shortest in monetary policy history at one day.)

At any rate, it is good to see that others can see the weak kronur is the most important problem facing Iceland now, and are making some viable suggestions.

GTB

 

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