Iceland's economy may be on the brink of collapse, but there has never been a better time to visit what was previously one of the most expensive destinations in Europe.

The country's financial turmoil has hit the value of the Icelandic krona with the result that sterling is two- thirds stronger against the currency than it was at the beginning of the year. A pound now fetches about 200 krona compared with 120 in January.

Iceland's reputation for being expensive, with some of the costliest food and drink in Europe (a small beer costs up to £6) is no longer justified, according to tour operators who are predicting a boom in travel to the North Atlantic island.

There has also been a sharp drop in the price of flights offered by Icelandair, the national carrier, and Iceland Express, a budget airline, as cash-strapped Icelanders have been booking fewer flights than usual. Icelandair holidays start from as low as £199 for three nights at a three-star hotel in Reykjavik, a fall of almost £100 on recent prices.

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“It's suddenly become one of the cheaper places to go on holiday in Europe,” said Clive Stacey, managing director of Discover the World, which sends more than 8,500 people to Iceland each year, more than any other travel company in the world. The krona had been slipping against the pound during the year, but the decision to temporarily cease trading in its three largest banks this week accelerated the slide, he said.

“I was in Iceland a week ago and it was already better value. I have been visiting the country for 35 years, and for the first time I looked at the menu in a restaurant and thought: ‘Actually that's not so bad'.

Stacey believes that the currency will stabilise at about 190 krona to the pound. At this level it will be “20 per cent cheaper compared with holidays in the eurozone than it was at this time last year”. He predicts that visitor numbers to the island will leap by a quarter in the year ahead.

The website www.travelmag.co.uk recently described Iceland as being “cold, dark and expensive”, while last year the Big Mac Index calculated by The Economist magazine found that Iceland was the most expensive country in the world. Icelandic Big Macs cost £4.39, the highest anywhere, compared to the cheapest in India, 83p. A Youtube video entitled “Iceland the expensive isle” showed clips of items sold in shops.

But prices have tumbled. “A beer costs about £3.50 now,” said Gareth Gee, owner of Iceland Holidays. “That's come down a lot. It's a very good time to go to Iceland.” A double room at “a very good hotel” is now about £100 a night.

At this time of year the sun rises at about 9.15am in Iceland and sets at 5pm. It is the best time to see the northern lights, and snowmobiling, four-wheel-drive tours and trips to the geothermal pools at the Blue Lagoon are also popular.

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