24 June 2016

Economic impact of the referendum on Britain's EU membership

Central Bank of Iceland
The result of yesterday’s national referendum in the United Kingdom was that Britain will begin the process of exiting the European Union. This process will take some time. The global financial markets have reacted strongly to the news, with currency exchange rates fluctuating widely and investors fleeing to lower-risk assets. In view of the turmoil, the Central Bank of Iceland has decided to publish a memorandum that it sent to the Government last Wednesday concerning the potential impact of Britain’s possible exit from the EU, now confirmed, on Iceland’s economy and financial market. According to the memorandum, the impact will probably be negative but not large, particularly as time passes. In this context, it should be noted that Iceland’s financial institutions have a strong capital position and limited exposures to the pound sterling, and they are well funded in foreign currencies. The Central Bank’s foreign exchange reserves are stronger than they have been for some time, and the capital controls mitigate fluctuations in capital flows. The Central Bank will monitor developments in international and domestic financial markets very closely in the days to come and will re-evaluate the situation as needed.

The Central Bank’s memorandum to the Government can be found here: CBI memorandum to the Government. Referendum on Britain's EU Vote