Spending the coin of the realm
Iceland is both a popular destination and a stopping off point on flights between the U.S. and Europe. However, it is not located in Europe, nor a member of the European Union. The euro is not the coin of the realm. You'll need to use Iceland's own currency to purchase postcards of its dramatic landscape that includes volcanoes, geysers, hot springs and lava fields. You'll be better off learning all about Iceland's money before you set foot in Reykjavik so that you can carry the appropriate currency to Iceland.
"Krona" means crown in Icelandic, and it is the name of the country's currency. Like the word dollar, you pluralize it if you are talking about two or more: one krona, two kronur. Kronur come in coins and bills. Coin denominations are one krona and five, 10, 50 and 100 kronur. You'll see bills of 500, 1000, 2000, 5000 and 10000 kronur.
The Icelandic krona carries the official abbreviation of ISK. This is used in exchange rate information. However, in the country, you'll see "kr" before or after a listed price to indicate the currency.
What about the euro? Only members of the European Union and their colonies use the euro as currency, and even then, not all of them. For example, Denmark and Sweden continue to use their own currencies.
Currency exchange rate
All exchange rates fluctuate day to day, so you'll want to check on the current ISK to USD (U.S. dollar) exchange rate just before you go. It has ranged from somewhat below 100 kronur to a dollar to somewhat over 100 kronur to a dollar in the recent past.
If you've accidentally brought euros to Iceland on the mistaken belief that Iceland uses euros, you may need that exchange rate as well. In the recent past, the exchange rate for one euro has ranged from 110 to 123 kronur.
Best way to exchange currency
Banks in Iceland exchange currency. Your hotel may also do currency exchanges too, but you risk getting a worse rate than at the bank.
Your best bet may be to use Visa and/or MasterCard credit cards to pay for items. This is very common in Iceland, even for small purchase amounts. In fact, Iceland residents may not carry any cash at all, other than the exact change required to catch the bus. American Express cards are less used in Iceland and may not be accepted. On the other hand, you'll definitely want to have cash if you leave the urban areas.
You can also withdraw money from ATM machines (including at the airport.) Use the debit card from your U.S. bank, and you can still withdraw kronur.
Do shops accept dollars or euros from customers? Some shops catering to tourists do accept these types of currencies. But watch the exchange rate. You may do better to use a card.