Central Bank of Iceland plans payment sovereignty with domestic fallback routes
Serguey Asael Shinder2 min readTómas Brynjólfsson, Deputy Governor for Financial Stability at the Central Bank of Iceland, used a speech at the Money Live Nordic Banking conference in Copenhagen on 30 October, published by the BIS on 3 November, to explain how Iceland wants to make its payment system harder to break. His starting point was that, for a small and highly digital economy, payment sovereignty does not mean self-sufficiency.
He described a system that is fast but concentrated. Instant payments have long been normal, interbank payments run through a localised system from a foreign vendor, and payments for goods and services are made almost entirely by card over the Visa and Mastercard networks. The domestic debit rails that mattered during the banking failures of the global financial crisis have given way to foreign ones, cash use is very low, and account-to-account payment schemes common elsewhere in the region never took hold. Critical services sit outside Icelandic jurisdiction, and the country's links abroad depend heavily on subsea cables.
The strategy has two parts: shelter in large, trusted international infrastructures through Iceland's place in the European Economic Area, and domestic resilience, meaning the ability to route payments through more than one channel and keep essential services running in a disruption. Iceland is outside the EU, the euro area and the Banking Union, which he said shapes that choice.
The bank has identified seven critical services and assessed their risks. Its work falls into three strands: payment continuity, both by strengthening existing routes and building new payment rails, with cash kept as a backstop for extreme events; preparedness, including a financial-infrastructure incident centre set up this year with round-the-clock monitoring; and system-wide oversight of shared dependencies, supported by Iceland's implementation of DORA.
What it means
Iceland is a clear case of the European debate on payment sovereignty in miniature: almost every card payment depends on two foreign networks. The bank's answer is not to replace them but to make sure there is a second route when they fail.