Thursday, February 05, 2009

OK, What's Wrong With This Scenario ?

The Icelandic krone has stabilised against sterling - in fact it's appreciated by 20% in the last two months as the pound falls against just about every currency except Zimbabwe's.

Unlike the useless Bank of England, the Icelandic central bank has maintained interest rates - at 18%.

Laban's UK cash, squirreled away in the good years to provide against a rainy day, is earning no interest and being eaten away by an inflation rate which IMHO is way above the "official" 2% - and likely to rise more as the pound's decline makes imports (i.e. pretty much everything we buy) more expensive. Remember, on the inflation rate, these were the people who took out of the inflation figures the most expensive single purchase most of us will ever make. I simply don't trust them any more.

Why can't I open a krone-denominated account and take advantage of these cracking interest rates ? There must be a catch somewhere, but what is it - apart from exposure to adverse currency movements (which is IMHO more likely if you hold sterling, as it approaches basket-case status) ?

1 comment:

paul ilc said...

Speak to a currency trader, Laban, but it's not a punt I would make. Sterling is nowhere near "basket-case status": it is slowly but steadily strengthening against the euro and the dollar, or rather they are weakening. This will continue, until perhaps the one-eyed Scottish idiot insists on 'quantitative easing'.

As for inflation, I agree: the figures are farcical. The actual inflation rate seems to be much higher, which makes me sceptical about the threat of deflation.