The local currency is the Icelandic króna (ISK), and its value collapsed quite dramatically during the 2008 economic crisis. As of Aug 2012, it trades at around 1 EUR = 150 ISK. This has also made local prices more affordable for the visitor, although the prices of imported goods have risen rapidly.
You will get a better rate of exchange if you buy and sell your króna in Iceland itself. Just about every establishment in Iceland will accept a credit card, including taxis, gas stations, souvenir stands, and even the most remote guest house, so it is not necessary to carry large amounts of Icelandic currency. However, due to the currency's instability some credit cards are still wary of króna transactions, so check with your bank before you go and don't rely entirely on plastic.
Following the 2008 economic crisis, foreign trading in the króna has been restricted, so you may struggle to get króna notes in your home country. As at March 2009 we found the only method was to find old stock at Bureaux de Change which carried it in stock, such as Marks & Spencer. This may have to be ordered in about a week in advance though.
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