Iceland grew a little richer on Tuesday, at least in cyberspace, with the launch of a virtual currency its pseudonymous founder hopes will circumvent the island’s capital controls and eventually replace the crown.
To warning noises from the country’s authorities and shrugged shoulders elsewhere, Baldur Friggjar Odinsson said the Auroracoin aimed to free Icelanders from their “financial prison.”
Since its financial system collapsed and controls were imposed in 2008, Iceland has been debating whether to adopt the euro or the Canadian dollar or go it alone with the crown, which lost more than 50 percent of its value during the crash.
By 1346 GMT, hours after its launch, Auroracoin’s website showed around 127,650 of the coins had been claimed out of 10.5 million to be distributed electronically over a whole year.
Two virtual exchange websites, Crypto-Currency Market Capitalizations and BitInfoCharts, valued one Auroracoin at $11.41 and $10.46, respectively, on Tuesday afternoon – but how and where its holders might spend the new currency was unclear.
Odinsson – who declined to give his real name and said he derived his pseudonym from Norse mythology – said he hoped Auroracoins could mimic the success of Bitcoins, the most widely-used crypto currency.
“The people are being held in a financial prison. Auroracoin is an effort to break down the walls of this prison,” he wrote in an email to Reuters.
Iceland’s parliament has expressed concern about the virtual currency and the central bank said it could be extremely risky.
“Recent experience shows that the value of virtual currency in terms of recognised currencies can fluctuate widely,” the central bank said in a statement earlier this month.
Ordinary Icelanders reacted with suspicion.
“I have no interest or intention of using this currency. I don’t like the crown either as it is very weak, but it is at least more secure than these Auroracoins,” Reykjavik teacher Hulda Gudmundsdottir said.
Crypto currencies like Auroracoin and its better-known forebear Bitcoin are handed out in strictly controlled amounts, giving them a value that can be traded.
Supporters argue they aren’t subject to the whims of central banks or governments, but their value also depends on whether they can be spent – something as yet unclear in Iceland.
Lars Christensen, emerging market economist at Danske Bank, said unless the law changed and allowed Icelanders to pay, for example, taxes in Auroracoins, the new currency would be unlikely to flourish.
But he said that given Icelanders’ lack of support for the crown and the failure of monetary policy to provide economic stability, adopting an alternative was not unthinkable.
“If you wanted to find somewhere where the conditions are in place, where the public is ready to accept an alternative to their own currency, Iceland is the place,” he said.
The island’s banks expanded overseas and built up assets 10 times the size of the economy before going bust in the global credit crunch late in 2008, saddling the country with huge debts.
About 12.4 million bitcoins, worth $6.2 billion at recent prices, have been minted since they began circulating in 2009, according to Blockchain.info.
But the currency has taken a knock from the recent failure of Mt. Gox, a Tokyo-based exchange that filed for bankruptcy after losing an estimated $650 million worth, bringing the currency under a new level of scrutiny by regulators.