Buy it. Do not owe it.

“I recommend buying it, not owing it.”

That is what Benedikt Gíslason, CEO of Arion Bank, says when discussing the inflation-indexed króna on Chess After Dark.

The sentence stayed with me.

Perhaps because it describes indexation more simply than many long explanations do.

An inflation-indexed króna is not a separate currency. You cannot withdraw one from a cash machine.

It is an Icelandic króna with a particular feature.

It tracks the price level.

If you own 100 inflation-indexed krónur and the index rises by 5 per cent, they become 105.

If you owe 100 inflation-indexed krónur, essentially the same thing happens.

The debt rises with the index.

This is the simplest way I know to understand indexation:

The same multiplier works for the person who owns the indexed asset and against the person who owes the indexed debt.

The strongest króna?

Benedikt gives an example starting in 1986.

According to his calculation, 100 inflation-indexed krónur from that time would have become about 1,000 krónur by 2026.

Roughly a tenfold increase.

He compares this development with foreign currencies and points out that none of them rose as much against the Icelandic króna over the same period.

The reason is simple.

The inflation-indexed króna does not need to appreciate in the foreign exchange market.

It rises with prices.

And then it becomes interesting to turn the example around.

If the multiplier works so well for the person who owns the indexed króna, what does it do for the person who owes it?

Which side are you on?

This is the question I find most interesting.

Not whether indexation is “good” or “bad”.

But:

Who owns the inflation-indexed assets?

Who owes the inflation-indexed debts?

And how are the effects of inflation distributed between these two groups?

If inflation increases one party’s indexed asset and another party’s indexed debt, they are not in the same position in relation to it.

That does not mean the owner of an indexed asset wants inflation.

It tells us nothing on its own about their behaviour.

But it tells us something about financial incentives.

And I always find it interesting to understand incentives.

What did indexation do for you?

Arion Bank, for example, reported a substantial positive net indexation position in its 2025 annual results. That means changes in inflation can significantly affect the bank’s income and balance sheet.

The same principles apply elsewhere in the economy.

A household may owe an inflation-indexed mortgage.

A pension fund may own an inflation-indexed bond.

A bank may hold both indexed assets and indexed liabilities.

A property company may be on either side, depending on the structure of its balance sheet.

That is why reality is more complicated than a simple division between “those who own” and “those who owe”.

But the basic question remains:

What did indexation do for you last year?

Did it increase your assets?

Or did it increase your debts?

Perhaps both.

That question tells us more about our position in the system than a general stance for or against indexation.

Systems are not neutral towards our position

This is, in fact, a broader idea I return to again and again.

We often talk about systems as if everyone experiences them in the same way.

But they do not.

Interest rates are not the same for someone who has capital and someone who needs to borrow it.

Inflation is not the same for someone who owns an indexed asset and someone who owes an indexed debt.

Rising property prices look different to someone who owns three apartments and someone trying to buy their first.

That is why I do not think it is enough to ask:

Is this a good system?

I also want to ask:

For whom?

Who bears the risk?

Who gets the benefit?

And what incentives does the system create?