Foreign exchange transactions have been subject to capital controls ever since the banking system collapsed in the autumn of 2008. Before the capital controls took effect, the Central Bank issued guidelines instructing the banks to limit foreign currency sales to essential transactions involving trade in goods and services. On 28 November 2008, the Rules on Foreign Exchange were adopted in accordance with temporary provisions in the Foreign Exchange Act. When the Rules took effect, all controls on current account foreign exchange transactions were lifted, but more stringent controls on cross‐border movement of capital and related foreign exchange transactions were imposed. The Rules have been reviewed and amended several times. The amendments have aimed primarily at closing loopholes in the original Rules. The Central Bank of Iceland's report from 25 March 2011 contains a new strategy for liberalisation of capital controls. The experience with the previous strategy is discussed, the development of the various conditions for lifting capital controls are described, the two main phases of the strategy are explained in broad terms, and the individual steps of the first phase are outlined in some detail.