External debt

Interbank positions and other transactions between resident and non-resident deposit-taking corporations are classified as deposits.

Trade credit is a claim generated when a provider of goods or services grants a customer an extension of time to pay or receive advance payment for goods or services. The trade-credit and advances derive from the fact that payment for the goods or services is not remitted at the time the goods are delivered or the service provided.

The balance of payments shows transactions between residents and non-residents over a specified period of time. It is divided into the current account balance, the capital account balance, and the financial account balance. As a general rule, the current account balance and the financial account balance plus the capital account balance should be equal, as a current account surplus increases external assets or reduces liabilities, while a current account deficit erodes external assets or is met with increased foreign borrowing. For each transaction, two entries are made. The amounts of the two entries should be equal, and their sum should be
zero. For example, goods imports are entered in the current account, and the payment for the goods is entered in the financial account. If the sum of the two entries is not zero, the remainder is entered under errors and omissions. Because each item is measured separately, using data from different providers, it is not guaranteed that the figures will agree.

The current account shows transactions between residents and non-residents with goods and services, primary income, and secondary income. The current account balance is the difference between revenues from exports, primary income, and secondary income, on the one hand, and expenses due to imports, primary income, and secondary income, on the other. All current account entries have a positive sign, apart from reinvested earnings and goods under merchanting, which could be either positive or negative. Reinvested earnings and goods under merchanting are explained in greater detail below.

Goods trade is divided into three categories: general merchandise on a balance of payments basis, net exports of goods under merchanting, and non-monetary gold. General merchandise on a balance of payments basis includes goods transactions involving a change of economic ownership between residents and non-residents. In this context, it is the change of ownership
that determines whether the transactions are entered into the current account balance or not. Transport of goods from one country to another does not, in and of itself, entail goods trade if there is no change of ownership.

Statistics Iceland compiles statistics on goods imports and exports, as well as external trade, and measures the importation and exportation of goods that are physically transferred to and from Iceland, irrespective of whether a change in ownership has taken place. The Statistics Iceland figures used for the balance of payments are adjusted for the balance of payments basis (change in ownership). Statistics Iceland publishes on its website a bridge table showing the changes made to external trade figures to adjust them for the balance of payments basis.

Merchanting includes domestic entities’ transactions with goods that do not physically enter Iceland: for example, if a domestic firm buys goods from Germany and sells them on to a buyer in Denmark without physically bringing them to Iceland. Even though the product never enters Iceland, the transaction is still considered a trade between a resident and a non-resident. The purchase of the goods is entered under goods trade as exports of goods under merchanting, with a negative sign. When the same goods are sold, the exportation of the goods is entered in a conventional manner, with a positive sign. The difference between purchase and sale price is shown under the item Net exports of goods under merchanting. The difference could reflect the intermediary’s profit, gains, or losses due to price changes, or changes in inventory. In case of a loss or an increase in inventories, net exports of goods under merchanting could be negative in some instances.

Non-monetary gold includes the importation and exportation of gold other than that
belonging to the Central Bank’s foreign exchange reserves.

Services transactions are entered into the current account balance for the period during which the service is provided. Services trade is divided into twelve categories; manufacturing services on physical inputs owned by others, maintenance and repair services not included elsewhere (n.i.e.); transport; travel; construction; insurance and pension services; financial services; charges for the use of intellectual property n.i.e.; telecommunications, computer, and information services; other business services; personal, cultural, and recreational services; and government goods and services n.i.e.
Statistics Iceland oversees the preparation of statistics on services trade and has done so since 2009. Previous figures were prepared by the Central Bank of Iceland.

Primary income includes revenues and expenses that derive from institutional units’ contribution to the production process or from providing financial assets or leasing natural resources to other institutional units. It includes compensation of employees, investment income, and other primary income.

Compensation of employees includes all of an employee’s wages and related expenses when the employee and employer reside in different countries. Compensation is recorded on a gross basis, including the employer’s contribution to the social security system, pension funds, and other items paid by the employer as a part of the employee’s terms of employment. Only those payments between parties in an employer-employee relationship are included with the compensation of employees. Otherwise, the payments are included in the services trade.

Investment income is net income from equity holdings (dividends and invested earnings) and liabilities (interest). Net income excludes capital gains, exchange rate gains, and financial intermediation services indirectly measured (FISIM). Investment income is classified according to the activities underlying the investment: direct investment, portfolio investment, other investment, or foreign exchange reserves. These are further classified in terms of the type of investment. Gains and losses due to price and exchange rate movements are separated from gains and losses on equity holdings and are not included in investment income.

Income on equity and investment fund shares is classified as dividends or reinvested earnings. Dividends are revenues distributed among shareholders in return for their having provided companies with funds for their disposal. Dividends are recognised in the period in which they are paid out.

Reinvested earnings are an imputed value that includes the portion of net profit (excluding price and exchange rate movements) that is not paid out to shareholders as dividends. In investment income, reinvested earnings represents the profit or loss that an investor receives on his holdings during the period, excluding dividends (dividends are also the profit or loss received by the investor on his holdings during a given period). Reinvested earnings, together with the exchange rate and price movements, therefore reflect changes in the value of equity between two periods and is entered into the financial account to reflect an increase or decrease in equity holdings.

Interest in primary income is measured as pure interest by excluding the FISIM component, financial intermediation services indirectly measured, from “actual” interest. Interest that borrowers pay can be split into two parts: pure interest (primary income) and FISIM (service). The same applies to interest received by depositors on their deposit balances. In this way, the
service portion is segregated out and recorded as a financial service in the services account. Interest including FISIM is shown as a separate memorandum item. FISIM is the margin between the deposit interest rates offered by financial institutions and the lending rates they charge, and it is used to cover operating expenses and dividend payments. In this way, borrowers pay indirectly for the services they receive by paying higher interest rather than paying service charges to lenders. By the same token, the interest income that depositors receive on their balances is considered to be net of service charges.

FISIM applies only to loans (or deposits) provided by financial institutions, and not to marketable bonds or trade credit between two non-financial enterprises. Investment income attributable to investment fund shareholders, including income from equity funds and custodial funds, consists of dividends and reinvested earnings. The funds earn income by investing the capital invested with them by shareholders. Shareholders’ income from investment funds is defined as investment income from the fund’s investment portfolio, net of operating expenses. The net income earned by investment funds after deducting operating expenses belongs to shareholders.

Like equity funds, insurance, pension, and standardised guarantee schemes earn income by investing the capital they receive from policyholders (fund members). The funds’ net income after deducting operating expenses belongs to rights holders.

Included in other primary income is income from renting natural resources. An example of this is payment for the use of land for the extraction of minerals or the use of fishing waters, forests, or grazing land. Taxes and subsidies on products and production are also included under other primary income.

Secondary income is divided into two categories: personal transfers and other current transfers. Personal transfers include all monetary transfers between individuals living in two different countries. The most common form is workers’ remittances, which are monetary transfers that individuals working abroad send to family members in their home country. Other current transfers consist of contributions to current international operations (development contributions) made by Government entities and non-governmental organisations, employees’ pension contributions, and pension benefits paid to retirees. The same applies to wage-earners’ social security contributions and social security payments to individuals, such as retirement and disability pensions, accident/illness per diem payments, and so forth. Tax refunds paid by the Government to non-residents, such as value-added tax
reimbursements paid to tourists and reimbursements for film production in Iceland, are included in secondary income. Premiums and claims for liability insurance are also included with other current transfers.

The capital account measures capital transfers “free of charge” between residents and nonresidents. Capital transfers can include investment grants, debt forgiveness, or unusually large insurance compensation payments.

The financial account includes net transactions with financial assets and liabilities which take place between residents and non-residents. The purpose of the financial account is not to measure the cross-border movement of capital (even though it is likely that most transactions involve the transfer of funds across borders), but rather to measure transactions between residents and non-residents. Transactions with foreign assets that take place between two residents are not included in the financial account, even though the transaction may entail cross-border movement of capital. The same applies to transactions with domestic assets that take place between two non-residents.

The financial account and the international investment position are related in that transactions entered in the financial account partially explain changes in external assets and liabilities between periods.

The international investment position shows the value of residents’ financial assets and liabilities to non-residents as of the end of each quarter. The difference between assets and liabilities is the IIP, which indicates whether there is a net claim or a net liability vis-à-vis nonresidents.

Valuation is based on market price; however, nominal valuation is used for positions in non-negotiable instruments, such as loans, deposits, and other accounts receivable/accounts payable. Equity holdings in direct investment are entered as own funds at book value in the books of the direct investment enterprise.

The financial account and the international investment position are related in that transactions entered in the financial account partially explain changes in external assets and liabilities between periods. Apart from transactions in the financial account, the value of external assets and liabilities can change because of changes in prices and exchange rates.

When an investor in one country owns 10% or more of the share capital of a company in another country, it is called Foreign Direct Investment. It is assumed that when the holding is this large or larger, it is the investor's intention to influence the management and policy of the company and to establish a long-term business relationship. The investor's loans (his contribution other than equity) or companies owned by him are considered as his additional investment in the company in question.

In the banks publication of direct investment the directional principle is followed. According to the principle, reverse investment between related parties in excluded and loans, between an investor and a company owned by him, are netted out and entered to either the assets or liabilities side, depending on whether the investor is a resident or a non-resident. Special purpose entities are excluded in the directional principle.

Direct investment in the balance of payments statistics as well as in the external position of the economy is presented according to the so-called asset and liability principle, which implies that asset and liability items are on a gross basis (claims between parent and subsidiary are not netted against each other). For example, this presentation implies that a domestic investor's loan to a foreign company owned by him is presented on the liability side of the external position of the economy but is not netted against the investor's loan claims on the foreign company on the asset side.

Loans between an investor and enterprises that are linked to it in a direct investment relationship are not considered direct investment if both parties are depository institutions, mutual funds or other financial institutions other than insurance companies and pension funds. In such cases, the loan is classified as other investment.

Real estate transactions are classified as direct investment. Investment in real estate is not considered a financial instrument and is special in that respect. Real estate transactions can be with individual real estate but also as real estate companies or holding companies.

Bonds are transferable financial instruments that are valid proof of a debt and are offered for sale in an offering in which all the main features of the bonds in each class are the same, including the name of the issuer (debtor), first interest date and provisions on repayment, interest rate and calling as appropriate. Marketable bonds are made to be bought and sold in the market, either on a stock exchange or directly over the counter between parties.

Types of bonds in Central Bank statistics:

Indexed market bonds
The principal changes in accordance with a certain index and is usually issued in Icelandic krónur. This includes, for example, housing bonds, housing fund bonds, HFF bonds, indexed Treasury bonds (RIKS) and indexed bonds issued by commercial enterprises, financial undertakings and municipalities.

Other marketable bonds and bills
The principal is not linked to any index - is non-indexed. These bonds can be issued in Icelandic krónur or foreign currencies. These include, for example, non-indexed Treasury bonds (RIKB), Treasury bills (RIKV) and bonds issued by commercial enterprises, financial undertakings, municipalities and foreign entities.

Equity
A shareholder’s claim on a given shareholding in a company. A public limited company issues special documents (shares) to prove that the owner of the equities (shareholder) holds a share in the company’s assets and annual profits. Shares are usually commercial papers, i.e. they can be bought and sold as specified in the company’s articles of association, either on a stock exchange or directly over the counter between parties. Upon dissolution of a company, shares become payable after all other debts of the company in question have been paid.

When an investor owns less than 10% of a company, it is considered a securities holding. If the share is larger, it is considered a direct investment and is classified as a share in an associated undertaking or affiliated undertaking.

Associated undertaking
An undertaking where direct and indirect ownership amounts to between 10-50% of the equity or voting rights.

Affiliated undertaking
A subsidiary of an undertaking, its parent company, or a sister company (i.e. a company under the same parent company). The condition is that the ownership stake amounts to > 50%.

Investment fund shares
Financial instruments confirming the claim of all owners of units in an undertaking for collective investment in transferable securities (UCITS) or in its separate divisions, to that fund’s securities holding. All holders of units have an equal claim on the income and assets of the undertaking or of its respective divisions, in proportion to their holdings in the total number of issued unit shares.

Equity liabilites
Equity is the entire shareholdings of the owners of an undertaking. Equity corresponds to the difference between assets and liabilities.

Transactions related to direct investment are defined as interactions wherein the parties trade financial assets and liabilities by mutual agreement. Direct investment transactions are classified as equity or debt.

Real estate transactions are classified under direct investment. Investments in individual properties are considered equity transactions. Real estate transactions can be limited to a single piece of property but can also include real estate companies or holding companies.

It is assumed that the direct investment is made with the intention of the direct investor to influence the management and policies of the direct investment company and to establish a long-term business relationship. Loans from investors (their contribution other than equity) or from companies owned by them are considered to be additional investments by them in the relevant company.

Shareholdings and other securities holdings between residents and non-residents are classified as portfolio investment (holdings less than 10%) unless there is a direct investment relationship between the parties. Investments in equity securities are usually short-term and, unlike direct investment, are not intended to exert control over the management or policies of the company.

Financial derivatives are financial instruments whose value is dependent on the price of another, the underlying asset. Financial derivatives are distinguishable from other asset classes because they generally involve the transfer of risk (such as interest rate risk, exchange rate risk, equity, and commodity price risks, etc.) rather than the provision of capital or other financial assets. The value of financial derivatives is separate from the value of the underlying assets. Financial derivatives fall into the following subcategories: options, forward contracts, and employee stock options.

Options
Options give the purchaser the right to buy or sell the underlying asset at a specified price (the strike price) by a specified date.

Forward contracts
Forward contracts are unconditional contracts wherein two counterparties agree to exchange a specified quantity of an underlying asset at an agreed strike price on a specified date.

Employee Stock Options
Also included in financial derivatives are employee stock options, which give employees of a company the right to buy its stock as part of their remuneration package. If an employee stock option can be traded on financial markets without restriction, it is classified as a financial derivative.

Other equity is equity not in the form of securities. It can include holdings in branches, trusts, and limited partnerships. Holdings in many international organisations are not in the form of securities and are therefore classified as other equity.

SPE are included with direct investment according to the asset and liability principle but are excluded in statistics according to the directional principle. SPEs are companies that are often established for tax purposes and whose actual operations are limited or non-existent. Some companies of this type are registered in Iceland; however, they are wholly owned by non-residents and own stakes in or loan claims against FDI related companies abroad, but they have no domestic assets. Actually, they are only shells for capital flowing through Iceland and have very limited economic impact. SPEs are included in statistics on Iceland’s balance of payments and international investment position from 2013 onwards, but reliable information on their balance sheets from before that time has been lacking.

Direct investment relationship
A direct investor, a direct investment enterprise, and fellow enterprises are considered to be engaged in a direct investment relationship.

Fellow enterprises
Entities that are neither under the control or influence of one another but are both under the control or influence of the same direct investor.

The ultimate controlling parent
The ultimate controlling parent is the entity at the top of the chain of ownership, where control over companies is maintained through direct or indirect majority ownership.

Control
A company that wields a total of 50% or more of the voting power in another company through direct or indirect ownership is considered to have control over the latter company.

Influenc
A company that wields a total of 10-50% of the voting power in another company through direct or indirect ownership is considered to exert influence over the latter company.

Direct ownership
An ownership share in another company.

Indirect ownershp
Ownership in a company through another company.

Direct investment position
Provide information on the total stock of investment made abroad and received from abroad

Direct investment flows
Net transactions with inward and outward financial assets and liabilities.

Reverse investment
This type of relationship covers the direct investment enterprise’s position and transactions with equity (under 10%) or loans to the direct investor.

Loans between related parties
This involves loans between parties who do not control or influence each other but are both under the control or influence of the same direct investor.

Transactions in direct investment are classified according to whether they belong under equity or loans.

Equity
Transactions with equity take the form of share capital and reinvested earnings.

• Equity securities transactions
  Equity securities are claims for a specified ownership share in an undertaking, and they entitle the owner to a portion of the book value of the company and its annual profit.

• Reinvestment
  Reinvested earnings is an imputed value that includes the portion of net profit (excluding price and exchange rate movements) that is not paid out to shareholders as dividends. Reinvestment therefore reflects changes in the value of equity between two periods.

Loans

• Loans are financial assets generated when a lender loans money directly to a borrower. Loans are further classified as long and short-term claims and debts.

• Debt securities are negotiable instruments serving as evidence of a debt. Among them are bills, bonds, notes, certificates of deposit, debentures, asset-backed securities, money market instruments, and similar instruments normally traded in the financial markets.

• Deposits. Deposits are standardised, non-negotiable agreements offered by deposit taking institutions (deposit money banks, or DMBs). The term of deposits can vary, depending on the agreement. Deposits generally imply that the debtor is obliged to return the principal to the investor.

• Trade credit is a claim generated when a provider of goods or services grants a customer an extension of time to pay or receive advance payment for goods or services. The trade credit and advances derive from the fact that payment for the goods or services is not remitted at the time the goods are delivered or the service provided.

• Other accounts receivable/payable include accounts receivable or payable other than those specified above. They can include tax liabilities, securities transactions, wages, or dividends.

Financial statements provide an overview of the main items in the balance sheets of financial institutions, divided into types of financial products and counterparties. They therefore indicate the development of the financial dimensions of an economy and the financial relationships between its industrial sectors. Financial accounts are part of the national accounts, which is an international, harmonised accounting system that provides a detailed overview of the national economy and its trade with other countries.

Gold
Owned or in the custody of monetary authorities as part of foreign exchange reserves. To qualify as reserve assets, gold deposits must be readily available on demand.

Special drawing rights
Rights allocated by the International Monetary Fund to strengthen the foreign exchange reserves of its member states. Special Drawing Rights (SDRs) are allocated in proportion to the countries’ respective quotas in the fund. Each member state’s quota is assigned on the basis of its relative share size in the world economy. The drawing rights represent a full and unconditional right of their holders to a foreign currency loan or other foreign currency assets from the International Monetary Fund. Member states can sell their quota to each other. A liability called the counterpart to the International Monetary Fund is recorded against the capitalised quota.

Currency and deposits consist of banknotes and coins in circulation, plus deposits. Deposits
Currency and deposits consist of banknotes and coins in circulation, plus deposits. Deposits are standardised, non-negotiable agreements offered by deposit-taking corporations. The term of deposits can vary, depending on the agreement. Deposits generally imply that the debtor is obliged to return the principal to the investor. They can be held in central banks or in deposit-taking corporations.

Notes and coin
Banknotes and coins that have a fixed nominal value and are issued by central banks or governments.  Notes and coin are cash in hand held by financial undertakings.

Banknotes and coins in circulation
Banknotes and coins that the Central Bank has issued to credit institutions, net of the banknotes and coins that are held by the deposit-taking corporations themselves.

Deposits are non-transferable agreements between a deposit-taking corporation and another party where funds are deposited in an account in a deposit-taking corporation for a long or short term return. Deposits can be retail deposits or wholesale deposits. Wholesale deposits are deposits for which the terms and duration of the relevant deposits have been specifically agreed upon either directly with the relevant deposit-taking corporation or through a money market broker. Such deposits are generally not available to regular savers and their terms are not standardised. Retail deposits are deposits in standard accounts with advertised terms and duration.

Demand deposits:
All deposits that can be converted into cash without any restrictions and used for payment by debit cards or other payment devices. Electronic money that can be used as a direct payment to a third party meets the criteria to be classified as a demand deposit. Current accounts at the Central Bank are considered demand deposits.

Easy access deposits:
Savings accounts without restrictions or deposit accounts where each deposit is restricted for a short period of time but the account is otherwise unrestricted.

Indexed deposits
Deposits that are restricted according to Rules No. 218/2023 on Price Indexation of Savings and Loans.

Holiday pay accounts
Indexed deposit accounts for employees’ holiday payments. Vacation payments are made no later than the beginning of the vacation period of each year.

Supplementary pension deposits
Indexed and non-indexed deposit accounts with additional pension savings for employees. Payment of pension savings and interest may not commence until the beneficiary has reached 60 years of age.

Other term deposits
Deposits that are either required to be held for an agreed fixed term, or can only be withdrawn by giving advance notice, i.e. do not have an agreed fixed term and can be converted into cash after notification.  This includes money-market deposits where interest rates and deposit terms are specifically agreed upon and the entire deposit amount is tied up for the entire deposit term.

Certificate of deposit
An electronic certificate for a deposit in the Central Bank of Iceland, issued to a financial undertaking. Certificates of deposit may be transferable.

Loans are non-transferable financial instruments where a lender lends money directly to a borrower and have fixed, predictable payments. Loans are generally non-transferable, but if loans become transferable from one owner to another, their classification is changed to marketable bonds. For loans to be reclassified, market transactions must take place.

Redeemed liabilities
Loans which a financial undertaking has reclaimed but has not yet demanded payment for from guarantors.

Overdraft facilities
Overdraft on a current account. This also includes debts due to payment cards.

Bills of exchange  
Written orders in a specific format from an issuer to a drawee to pay a certain amount to a third party. Bills of exchange can be bills of exchange against another person or an own promissory note. A bill can also be an own promissory note whereby the issuer undertakes to pay the stated amount on the date of maturity. Most bills are non-indexed and generally used for short-term financing (4 months or less). Bills are generally not issued for a longer term than one year.

Indexed loans
A bond whose principal changes in accordance with a certain index that ensures that the bond maintains its value. Bonds are written undertakings by an issuer (borrower) to pay another party (the lender) a specified amount including interest for a certain period of time and to repay the loan on its date of maturity. Indexed bonds according to the Central Bank of Iceland's rules No. 218/2023 on Price Indexation of Savings and Loans are based on the Consumer Price Index.

Other loans and receivables
Non-indexed bonds and receivables other than accounts receivable. A receivable is a legally protected authorisation by one party to demand payment from another party, i.e. the debtor. This also includes non-indexed interbank loans and claims against subsidiaries.

Purchase lease agreements
Synonym for financing lease and hire-purchase agreements. They differ from direct loans in that they involve the lender buying the liquidity or asset requested by the customer and subsequently renting it to the customer for a pre-negotiated term. Ownership is therefore the main collateral for the lender.

Collateral loan
The Central Bank can grant loans for both short and long terms, but all loans granted by the Central Bank are secured loans, as the bank may only lend against collateral that the bank deems eligible. The rates on 7-day collateralised loans form the centre of the interest rate range.

Securities lending
Securities lending with cash collateral

Provisions
Provisions are precautionary entries made by lenders in connection with recoveries on loans. Provisions are made based on the assessment of expected loan losses due to specific customers.

Unused credit lines are not classified as loans as they are not debts but obligations.

Overnight loans
Loans that counterparties in transactions with the Central Bank can apply for on their own initiative, if they can put up collateral that the Central Bank deems eligible. Overnight loans are loans until the next business day.

Collateral loans
Loans against collateral in securities. The Central Bank lends against collateral in securities and the agreement is reversed after 14 days. Counterparties submit eligible securities, according to the bank's list of securities eligible as collateral.

The insurance, pension, and standardised guarantee schemes that most strongly affect the statistics of the Central Bank of Iceland Iceland’s are non-life insurance technical reserves and pension entitlements. Other categories are life insurance and annuity entitlements, entitlements to non-pension benefits, claims of pension funds on pension managers, and provisions for calls under standardised guarantees.

Pension funds
Fund members’ pension fund assets are not necessarily equivalent to the pension funds’ assets because there are different types of funds. They could be either defined-benefit funds or defined-contribution funds. Defined-benefit funds are of two types: funded and unfunded. Assets in defined-benefit funds are calculated in terms of the fund’s actuarial position. If a defined-benefit fund is funded, it can be assumed that fund members’ assets (their actuarial
position) at any given time are equal to the market value of the fund’s assets. In the case of unfunded defined-benefit funds, however, the funds’ assets could be less than their actuarial position, and the employer is responsible for bridging the gap that develops. Defined contribution funds are always funded; therefore, fund members’ assets at any given time are equal to the market value of the assets in the funds.

Non-life insurance technical reserves
Non-life insurance technical reserves fall into two categories. On the one hand, is a fund for prepaid premiums, and on the other is a fund for outstanding claims that the insurance companies expect to pay for events that have already occurred. These funds constitute the insurance companies’ liabilities and the insured parties’ assets. Their impact on statistics is comparable to that of the pension funds, which is described above.

Other accounts receivable/payable include accounts receivable or payable other than those specified above. They can include tax liabilities, securities transactions, wages, or dividends.

These include real estate, property, plant and equipment and intangible assets.

Securities (bonds and bills) offered for purchase on the securities market.  Securities offerings can be open (public) or private.

Public offerings
Public offerings are general offerings of securities (bonds and bills) that are offered to the public for purchase through general and public advertisements with prospectuses or other forms of presentations that can be equated to public advertisement with prospectuses.

Private offerings
Only a defined group can participate in a closed securities offerings e.g. financial undertakings (banks, pension funds and other financial institutions) and professional investors. Closed securities offerings do not need to be advertised publicly.

Initial offerings
Offerings and sale of a new (newly issued) security.

Payment intermediation companies facilitate payments from cardholders to merchants using payment intermediation technology, including cards and POS (point of sale) devices. Data on payment intermediation reflect the turnover and number of transactions of domestic cards within Iceland, as well as the turnover and number of transactions of foreign cards in Iceland.

Card issuers
Issue cards to individuals and businesses to make payments for goods and services. In addition, it is possible to withdraw cash via card transactions. Please note that these are domestic financial institutions and not international card systems such as Mastercard or VISA.

Merchant acquirers
Provide sellers with point of sale (POS) devices and other technological solutions to receive and process payments from cardholders.

Debit card
An electronic card that transfers money directly from the cardholder's bank account.

Credit card
An electronic card where payments accrue with acquiring services to be collected monthly from the cardholder.

Active credit cards
Cards that have been used in the relevant month.

Issued payment cards
All issued, valid cards, regardless of whether they have been used.

Reserve assets are foreign assets that are always available to monetary authorities and under their control. Reserve assets must be foreign-denominated assets, claims against nonresidents, and assets that actually exist. Potential assets are excluded.

Net foreign exchange position, short-term
Short-term foreign assets net of short-term foreign liabilities.

Monetary base
Banknotes and coins and deposits of credit institutions in the Central Bank.

Net deposits of Treasury and government institutions
The Central Bank Act states that the Central Bank is the commercial bank of the Treasury. The Treasury and various government institutions may have current accounts in the Central Bank. Interest rates on the current accounts of government institutions are the same as those on the current accounts of financial undertakings in the Central Bank. The Treasury is not permitted to have an overdraft at the Central Bank.

A resident is any individual and legal entity permanently residing in Iceland, irrespective of nationality. Students and embassy employees are exempt from the residency requirement. Therefore, Icelandic students and their families who reside abroad are considered residents, and foreign embassy employees are considered non-residents. Non-residents shall mean all parties except residents.

Remaining maturity is based on the original maturity. Long-term loans and receivables therefore remain long-term loans/receivables even if the effective remaining term is one year or less. The duration of original maturities are either:

Short-term: ≤ 1 year
longer-term: > 1 year

Foreign currency position, net, short-term
Foreign short-term assets less foreign short-term liabilities.

Base money
Banknotes and coin and deposit institutions’ deposits with the Central Bank.

Treasury and Government institutions’ deposits, net
According to the Act on the Central Bank of Iceland, the Bank serves as the commercial bank for the Treasury. Both the Treasury and various Government institutions are authorised to hold current accounts with the Central Bank. Interest rates on Government institutions’ current accounts are the same as those on financial institutions’ current accounts with the Central Bank. The Treasury is prohibited from overdrawing its accounts with the Central Bank.

The interbank market is divided into the interbank market for krónur (ISK) on the one hand, and the interbank market for foreign exchange on the other hand.

Interbank market in krónur (krónur market)
A market for short-term loans between market participants. Market participants shall quote interest rate bids for lending and borrowing in the market no less frequently than every 10 minutes. The market lending rate is called REIBOR (Reykjavik Interbank Offered Rates) and the deposit rate is called REIBID (Reykjavik Interbank Bid Rate).  The contractual term of loans in the interbank market for krónur can be overnight (ON), weekly (SW), one month (1M), three months (3M) and six months (6M).

Participants in the interbank market for krónur send notifications of contracts to the Central Bank as soon as they have taken place. The data is therefore based on actual transactions in real time between parties.

Interbank market for foreign exchange
The exchange rate of the Icelandic króna (ISK) is determined in the foreign exchange market. Financial companies who act as market makers are entitled to participate in the FX market, together with the Central Bank. Market makers can be entities that have an unrestricted operating licence for foreign exchange trading. The interbank market for foreign exchange is open from 9:15 AM to 4:00 PM each business day.

The real exchange rate is defined as the development of consumer prices or unit labour costs (ULC) in one country relative to those in its trading partner countries, measured from a specific base year and in the same currency. Data are based on official exchange rate listings and consumer price indices/unit labour cost indices for Iceland and Iceland's main trading partners according to their weight in foreign trade (narrow trade basket). The base year for the real exchange rate index is 2005 (annual average 2005 = 100).

Relative consumer prices
Relative consumer prices are defined as prices in Iceland compared to consumer prices those in other countries, calculated in the same currency.

Relative unit labour cost

Relative unit labour cost is defined as the labour cost per unit produced in Iceland in proportion to the labour costs per unit produced abroad, calculated in the same currency.

Monthly, quarterly and annual data stretching back to 1980 for real exchange rates in relation to relative price levels are published, while quarterly and annual data stretching back to 1991 are published for real exchange rates in relation to relative unit labour costs.

Contractual foreign currency obligations scheduled to come due during the 12 months ahead. Payments of short-term foreign obligations are classified into three sub-periods on the basis of remaining maturity. Included are foreign currency-denominated obligations of the Central Bank and other central government (excluding social security) to residents or non-residents. Short-term obligations include those with an original maturity of one year or less and those with longer original maturities whose remaining maturity is one year or less. Also included are payments falling due during the next twelve months on obligations with an original maturity of more than one year.

Possible payments due to contractual obligations that may affect foreign currency assets. These are foreign currency-denominated obligations of the Central Bank and the central government (excluding social security) to residents and non-residents that are contingent upon exogenous events and are by definition off-balance-sheet activities. There are two types of contingent flows: either they emanate from potential assets and liabilities such as undrawn, unconditional credit lines and foreign exchange guarantees. Otherwise they arise from the authorities’ positions in options contracts, if and when the options are exercised.

Credit lines that are negotiated with foreign banks but have not been utilised. If credit lines need to be utilised, little or no notice is required to draw on them. On the one hand, there are credit lines obtained from other banks and, on the other hand, credit lines that other banks have obtained from the Central Bank.

SDR is a basket of international currencies defined by the IMF. The basket currently includes five currencies. the US dollar (USD), pound sterling (GBP), euro (EUR), Yuan (CNY) and yen (JPY). The composition of the basket is reviewed every five years by the IMF. The US dollar value of the SDR is calculated by the IMF on the basis of the exchange rates of the currencies in the basket as quoted at noon each day in the London market. Markets and market operations of the Central Bank of Iceland fixes the exchange rate of the SDR against the Icelandic króna.

The banking system consists of the Central Bank and deposit-taking corporations. Deposit-taking corporations have permission to accept funds for deposits. They operate in accordance with the Act on Financial Undertakings, no.161/2002. The Central Bank operates on the basis of the Act on the Central Bank of Iceland, no. 92/2019.

Broad Money
The money supply compilations include the deposits of all entities other than the Central Bank, deposit-taking institutions, the Treasury, and non-residents.

Money supply (M1)
The total of banknotes and coins in circulation and the current ac-count deposits.

• Current account balances are deposits that can be used for payment to a third party via debit card, cheque, or other direct payment mechanism. They can be denominated in Icelandic krónur or foreign currencies.

• Banknotes and coins in circulation consists of banknotes and coins circulated outside deposit-taking corporations and the Central Bank.

The money stock and general savings (M2)
The sum of M1 and general savings account balances.

• General saving account balances includes deposits that are not tied or subject to restrictions on access to them. They can be denominated in Icelandic krónur or foreign currencies.

The money stock and savings (M3)
The sum of M2 and term deposits.

• Term deposits are deposits to which access is restricted for a short or long period of time and which depositors cannot withdraw whenever they choose. They can be denominated in Icelandic krónur or foreign currencies.

Broad money (M3+)
The sum of M3, money market fund unit shares and deposit institutions’ short-term debt instruments.

Statistics regarding new credit differ from those in the balance sheet of deposit-taking corporations, since overdrafts and money market loans are outside the new credit set.

New credit
Built on Regulation of the European Central Bank (ECB), no. 34/2013, with regards to interest statistics for deposits and loans to households and businesses. According to the Regulation, a loan is considered to be new if a (new) agreement is made between the lender and the borrower, including:

1. All loan agreements, terms and conditions specified as first time loans.

2. All loans where the borrower and lender negotiate jointly for new /amended terms and conditions of the loan agreement.

Prepayments of loans
Prepayments in the respective month. Not cumulative. These are excess payments, i.e. payments in excess of those specified in the contract. Prepayments shall be based on a claim value of loans, i.e. without deducting discounts or amounts that have been set aside for the depreciation account. The position of disbursed loans includes accrued interest and indexation (if that is the case ) at the end of the last day of the month. Prepayment is defined as a payment that decreases the loans value more than the original payment plan expects and does not include amortization. Furthermore, if the loan is modified so that it constitutes a new loan, a comparable payment shall be filed against the new loan if there is no change in the net cash flow.