Iceland is recovering from its financial shock – without the aid of a bank bailout
It’s been a good week for the admittedly small band of people who get excited about the decisions made by central banks. In America, the Federal Reserve embarked on a second great round of printing money. In this country, the Bank of England abandoned any idea of controlling inflation, leaving interest rates at a three-century low despite having missed its inflation target for seven months.
But by far the most interesting decision was made a long way to the north, in a country which people usually only pay attention to when its banks or volcanoes blow up, bringing either the financial or air traffic system grinding to a halt. Mar Gudmundsson, the governor of the Icelandic Central Bank, cut his country’s interest rate, bringing it down to a fairly normal 5.5 per cent. And he wasn’t trying to stave off a banking collapse or salvage an economy as it plunged into recession.

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