The króna is the official currency of Iceland. As a decimal currency, it can be subdivided into 100 aurar, but aurar are no longer used due to their low value. The name of the currency was borrowed from other Nordic countries that use derivatives of the Latin word corona, which means crown, for the names of their currencies. Due to this meaning, the króna is often referred to as the Icelandic crown in English-speaking countries.
As a colony of Denmark, Iceland used the Danish krone as currency beginning in 1874 and the Danish rigsdaler before it. In 1885, Iceland began to issue its own banknotes in denominations of Danish krones. Between 1914 and 1918, the Scandinavian Monetary Union dissolved and Iceland gained political independence from Denmark, leading to the Icelandic króna to be introduced in 1922 as a series of coins. The notes issued by the Bank of Iceland remained in use along with notes issued by other banks. It was not until 1961 that the Central Bank of Iceland was established and made the sole issuing authority.The Central Bank of Iceland controlled the issuing of the króna from its inception in 1961 to the time the currency was revalued in 1981. The second króna was issued at a rate of 100 old króna (ISJ): 1 new króna (ISK).
The Central Bank of Iceland has gained power and authority since it was first established. The central bank is under the jurisdiction of the Ministry of Economic Affairs and the Supervisory Board, but since the passing of the Central Bank Act of 2001, The Central Bank of Iceland was given the primary objective of maintaining price stability by adopting an inflation rate target. This effectively made the central bank the sole monetary authority of Iceland. The government may only set economic policy if it does not conflict with the central bank’s primary objective. Other duties given the central bank include overseeing the financial system as a whole and setting exchange rate policy. The Central Bank of Iceland sets monetary policy by setting broad and narrow merchandise and trade indexes calculated using a basket of currencies. This basket of currencies was last revised in 2007.
Iceland has recently applied for membership into the European Union. If accepted, the country may become eligible to adopt the euro. In the latest polls, 53 percent of Iceland’s public is in favour of conversion to the euro.