The first permanent settlement in Iceland by Norsemen is believed to have been established in Reykjav¨ªk by Ing¨®lfur Arnarson around AD 870; this is described in Landn¨¢mab¨®k, or the Book of Settlement. Ing¨®lfur Arnarson is said to have decided the location of his settlement using a traditional Viking method; by casting his high seat pillars (?ndvegiss¨²lur) into the ocean when he saw the coastline, then settled where the pillars came to shore. Steam from hot springs in the region is said to have inspired Reykjav¨ªk's name, which loosely translates to Smoke Cove (the city is often referred to as the Bay of Smokes or Bay of Smoke) The original name was Reykjarv¨ªk with an additional -r that vanished around 1300.
Reykjav¨ªk is not mentioned in any medieval sources except as a regular farm land but the 18th century saw the beginning of urban concentration there. The Danish rulers of Iceland backed the idea of domestic industry in Iceland that would help to stimulate much-needed progress on the island. In 1752, the King of Denmark donated the estate of Reykjav¨ªk to the Innr¨¦ttingar Corporation; the name comes from Danish "indretninger", meaning enterprise. The leader of this movement was Sk¨²li Magn¨²sson. In the 1750s several houses were constructed to house the wool industry that was to be Reykjav¨ªk's most important employer for a few decades and the original reason for its existence. Other crafts were also practiced by the Innr¨¦ttingar, such as fisheries, sulphur mining, agriculture, and shipbuilding.
The Danish Crown abolished monopoly trading in 1786 and granted six communities around the country an exclusive trading charter, Reykjav¨ªk was one of them and the only one to hold on to the charter permanently. 1786 is regarded as the date of the city's founding; its 200th anniversary was celebrated in 1986. Trading rights were still limited to the subjects of the Danish Crown however, and Danish traders continued to dominate trade in Iceland. Over the following decades, their business in Iceland expanded. After 1880, free trade was expanded to all nationalities and the influence of Icelandic merchants started to grow.
Borgart¨²n is the financial centre of Reykjav¨ªk, hosting a large number of companies and three investment banks.
Reykjav¨ªk has been at the centre of Iceland's economic growth and subsequent economic contraction over the last decade, a period referred to as the "Nordic Tiger Years" or "Iceland's Boom Years". The economic boom led to a sharp increase in construction, with large redevelopment projects such as Harpa concert hall and conference centre, Sm¨¢ratorg and others.
Reykjav¨ªk is often dubbed "the nightlife capital of the north". It is famous for its nightlife during the weekends. Icelanders tend to go out late so bars that look rather quiet can fill up suddenly¡ªusually after midnight on a weekend.
Alcohol is relatively expensive at bars. People tend to drink at home before going out. Beer was banned in Iceland until 1 March 1989, but has since become popular among many Icelanders as their alcoholic drink of choice. Beer, however, is expensive: half a litre of beer in an Icelandic bar can cost between 600 and 850 kr¨®nur (approx. $4.60 to $6.55 or €3.80 to €5.38 or ¡ê3.20 to ¡ê4.50 as of June 2010).
There are over 100 different bars and clubs in Reykjav¨ªk; most of them are located on Laugavegur and its side streets. It is very common for an establishment that is a caf¨¦ before dinner to turn into a bar in the evening. Closing time is usually around 6 am at weekends and 1 am during the week.