Last year, the failures of Iceland's three largest banks prompted the a plunge in the krona, forced the country to the brink of bankruptcy, and made crucial a $4.6 billion bailout led by the International Monetary Fund (IMF). Even with the controls on foreign capital, interest rates hit 18% after the bailout, before finally settling at a still high 12% in June 2009.

"The capital controls imposed on Nov. 28, 2008, were considered necessary in order to stabilize the economy in the wake of the financial crisis that struck Iceland in October 2008," according to the central bank's statement. It continued, "The conditions necessary for the initial stage in removing the controls, in accordance with the capital account liberalization strategy presented by the Bank on August 5, 2009, have now developed."

The next step will be to lift the controls on foreign currency outflows, with the central bank explaining, "The next phase of capital account liberalization -- the removal of restrictions on capital outflows -- will be determined by the success of this phase [i.e., the inflows liberalization] and the progress made under the macroeconomic program." Ultimately, the goal is to drop all restrictions in between two and three years.

These developments come on the heels of the IMF review of Iceland's economic program last Thursday, which included the disbursement of $167.5 million in IMF funds to Iceland and the availability of $625 million from Denmark, Finland, Norway, Sweden, and Poland. As capital restrictions are eased, this capital will be used to strengthen the company's reserves.

The past year has been pretty brutal for the 300,000 or so people living in Iceland. The country's economy is expected to contract 9.1% by the end of this year, with household spending off 19.7% and investments down 48.4%.