It's the coward solution

What would be a better solution? At least _someone_ is not going to get their money back. You could take as much as you could by force, but I don't see that that would solve anything...

Erm, they already did that. Well, they refused to pay the balance of all the foreign deposits when their banking system collapsed. The problem is that the country of Iceland no longer has this previously large sector in their economy, so the total economic pie was actually smaller, so they had to find some way to fairly apportion the pain from people's standard of living shrinking. And more importantly do it in a way that didn't cause a lot of unemployment that would shrink the economy even more.

Are you arguing that it's actually ineffective, or just that it's not gentlemanly toward foreign investors?

Well, it's not gentlemanly towards anyone, particularly savers in your own country.

Suppose I'm a retired gentleman in Ruritania with one million Ruritanian rurs in the bank. The King of Ruritania has got himself into some deep debt problems with foreign creditors due to his addiction to racing and eating greyhounds. He can either say:

a) "Guess what? I'm only going to pay back 10% of my debts! Suck it, creditors!", or

b) "Ohhhh, suuure, I'll pay back all my debts. Oh, did I mention that a Ruritanian rur henceforth has one tenth the value it used to? Heh, cool."

In the latter case my savings are completely wiped out, as are the savings of everyone else in Ruritania [while mortgageholders suddenly become very rich]. In the former case, while there'll probably be some damage to the currency my savings aren't affected so badly.

I think you're confusing price inflation with currency devaluation.

If everything in Ruritania is "worth" 10% of what it was, then nothing has changed. It's only foreign goods that have become more expensive, and your exports have become cheaper.