Reykjavik
Reykjavík is the capital and largest city of Iceland. It has a latitude of 64°08' N, making it the world's northernmost capital of a sovereign state, and is a popular tourist destination. It is located in southwestern Iceland, on the southern shore of Faxa Bay. With a population of around 120,000 (and over 200,000 in the Capital Region), it is the heart of Iceland's cultural, economic and governmental activity.
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Iceland - Island Iceland - Island Iceland - Island
Reykjavík is believed to be the location of the first permanent settlement in Iceland, which, according to Ingólfur Arnarson, was established in AD 874. Until the 19th century, there was no urban development in the city location. The city was founded in 1786 as an official trading town and grew steadily over the next decades, as it transformed into a regional and later national centre of commerce, population, and governmental activities. It is among the cleanest, greenest, and safest cities in the world
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Iceland - Island  Iceland - Island Iceland - Island
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Reykjavik Birds
 
History
The first permanent settlement in Iceland by Norsemen is believed to have been established at Reykjavík by Ingólfur Arnarson from Norway around AD 870; this is described in Landnámabók, or the Book of Settlement. Ingólfur Arnarson is said to have decided the location of his settlement using a traditional Norse method; he cast his high seat pillars (Öndvegissúlur) 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 Reykjavík's name, which loosely translates to Smoke Cove (the city is sometimes referred to as Bay of Smoke or Smoky Bay in English language travel guides). The original name was Reykjarvík with an additional "r" that had vanished around 1800.

Reykjavík is not mentioned in any medieval sources except as being covered by farmland, but the 18th century saw the beginning of urban concentration. The Danish rulers of Iceland backed the idea of domestic industry in Iceland that would stimulate much-needed development on the island. In 1752, the King of Denmark, Frederik V, donated the estate of Reykjavík to the Innréttingar Corporation; the name comes from the Danish language word indretninger, meaning institution. The leader of this movement was Skúli Magnússon (is). In the 1750s several houses were built to house the wool industry that was to be Reykjavík's most important employer for a few decades and the original reason for its existence. Other crafts were also practised by the Innréttingar, 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, Reykjavík was one of them and the only one to hold on to the charter permanently. The year 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, 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.

Source: wikipedia.org