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rfmcdonaldBarrie McKenna's Globe and Mail article discussing what seems to be growing discussion in Iceland about replacing the Icelandic króna with the Canadian dollar has gone viral across my Facebook feed.
For many Canadians who read this, learning that any country--even one as small as Iceland--wants to unite in some fashion with Canada on grounds of our economic strength is a massive ego boost. McKenna does highlight the importance that the extension of Canadian money elsewhere in the Arctic might have on Canadian heft, at least the perceived importance. As far as I can tell, the Icelanders are still debating the question (to put it mildly), while very few people in Canada have been thinking about Iceland at all since the stabilization of the economy.
One note: Adoption of the Canadian dollar would also complicate Iceland's emergent relationship with the European Union. How would it work for a European Union member-state that adopted the currency of a non-member, indeed, the currency of a non-European country? (I've joked in the past that maybe Canada should join the European Union since someone has to pay for Romania, but seeing what's going on with Greece takes the fun out of that joke.)![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
nwhyte?
For many Canadians who read this, learning that any country--even one as small as Iceland--wants to unite in some fashion with Canada on grounds of our economic strength is a massive ego boost. McKenna does highlight the importance that the extension of Canadian money elsewhere in the Arctic might have on Canadian heft, at least the perceived importance. As far as I can tell, the Icelanders are still debating the question (to put it mildly), while very few people in Canada have been thinking about Iceland at all since the stabilization of the economy.
One note: Adoption of the Canadian dollar would also complicate Iceland's emergent relationship with the European Union. How would it work for a European Union member-state that adopted the currency of a non-member, indeed, the currency of a non-European country? (I've joked in the past that maybe Canada should join the European Union since someone has to pay for Romania, but seeing what's going on with Greece takes the fun out of that joke.)
nwhyte?[T]iny Iceland, still reeling from the aftershocks of the devastating collapse of its banks in 2008, is looking longingly to the loonie as the salvation from wild economic gyrations and suffocating capital controls.
And for the first time, the Canadian government says it’s open to discussing the idea.
In brief remarks to be delivered Saturday in Reykjavik, Canadian ambassador Alan Bones will tell Icelanders that if they truly want the Canadian dollar, Canada is ready to talk.
But he will warn Icelanders that unilaterally adopting the loonie comes with significant risk, including complete loss of control over their monetary policy because the Bank of Canada makes decisions only for Canadians and the Canadian economy. He’ll caution, for example, that giving up the krona in favour of the Canadian dollar (CAD/USD-I1.01-0.004-0.36%) will leave the country with few levers, short of layoffs, to counter financial shocks and fluctuations in the loonie.
[. . .]
There’s a compelling economic case why Iceland would want to adopt the Canadian dollar. It offers the tantalizing prospect of a stable, liquid currency that roughly tracks global commodity prices, nicely matching Iceland’s own economy, which is dependent on fish and aluminum exports.
There’s also a more sentimental reason.
“The average person looks at it this way: Canada is a younger version of the U.S. Canada has more natural resources than the U.S., it’s less developed, has more land, lots of water,” explained Heidar Gudjonsson, an economist and chairman of the Research Center for Social and Economic Studies, Iceland’s largest think tank.
“And Canada thinks about the Arctic.”
In a recent Gallup poll, seven out of 10 Icelanders said they would happily dump their volatile and fragile krona for another currency. And their favoured alternative is the Canadian dollar, easily outscoring the U.S. dollar, the euro and the Norwegian krona.
Iceland is also in a bind. The country imposed strict currency controls after its spectacular banking collapse in 2008. Foreign-exchange transactions are capped 350,000 kronas (about $3,000). A major downside of those controls is that foreign investors can’t repatriate their profits, making Iceland an unattractive place to do business.
Those capital controls are slated to come off next year. And many experts fear a return to the wild swings of the past -- in inflation, lending rates and the currency itself. Iceland is the smallest country in the world still clinging to its own currency and monetary policy. The krona soared nearly 90 per cent between 2001 and 2007, only to crash 92 per cent after the financial crisis in 2008.
The official government plan is to go to the euro. Iceland has applied to join the European Union and eventually the euro zone. But that’s not looking like a very attractive option these days. And formal entry could take a decade, experts said.
The other options are to peg the krona to another currency, such as the yen, greenback or euro.
