May 17, 2012

Iceland adopting the Canadian dollar? It’s more likely than you think

Filed under: Cancon, Economics — Tags: , — Nicholas @ 08:18

Tristin Hopper in the National Post on the continued interest in Iceland for a currency union with Canada:

Icelanders are united on the need to ditch the krona. However, the country’s reigning Social Democrats want the Euro, while the opposition Progressive Party has been pushing for the Canadian dollar since last summer. As resource economies, Canada and Iceland’s economic cycles are more likely to be in sync, loonie proponents argue. Also, Canada is home to about 200,000 people of Icelandic descent, more than anywhere else in the world. “I see that connection helping the public in Iceland accepting a new currency,” said Mr. Gudjonsson.

So far, the loonie appears to be winning. A March Gallup poll showed public approval for the loonie easily pulling ahead of the U.S. dollar, the euro and the Norwegian krone.

The mechanics of the swap would be the easy part. A party of Icelanders officials would simply fly to a Canadian bank and arrange a $300-million withdrawal. The final pile of multicoloured bills — no larger than two photocopiers — would then be shipped across the North Atlantic and loaded into ATMs and bank vaults over a weekend. (While there is far more than $300-million in the Icelandic money system, the country currently only has $300-million worth of krona coins and bills in circulation.)

Short of imposing its own Iceland-style currency controls, the Bank of Canada has no choice in the matter. “We will do it unilaterally without asking,” said Mr. Valfells. “It’s better to ask for forgiveness than permission.”

Update: In a totally unrelated development, if Iceland adopts the loonie to replace the krona, we may get more interesting stories like this one from our new Icelandic friends. It’s got all sorts of elves, norse gods, and politicians. Much more fun than our current troll-versus-troll stories out of Ottawa.

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