Will Iceland adopt the Canadian loonie? Icelanders are keen on the idea, but the Canadian government and the Bank of Canada are not enthusiastic or open about the possible currency adoption in the North Atlantic country.
Since the collapse of Iceland’s financial system four years ago, the country has suffered from high unemployment, severe debt loads, currency instability (Iceland krona) and bankruptcies. Public officials are now having an open discussion about possible solutions to get the Icelandic economy back to where it was a year before the crisis transpired.
For close to a year now, Iceland’s Progressive Party has started the idea of adopting Canada’s dollar. However, many still do believe the country will start to use the euro since it has entered talks to join the European Union. Many Icelanders reject the notion of adopting the euro for many reasons, including the EU’s troubles with Greece.
Recent studies in Iceland suggest that nearly three quarters of the population support adopting the loonie – earlier poll numbers put the figure at one-third, though. Why wouldn’t there be support? Canada and Iceland share good relations since they permitted a large amount of Icelanders in the early 20th century due to volcanic eruptions in the country. Also, Icelanders are desperate for a strong currency since the krona is worth less than one cent.
“We’re certainly open to discussing the issue if Iceland makes that request. What we know about the nature of the final agreement depends very much on the expectations of both countries,” said Alan Bones, Canadian Ambassador to Iceland, in a recent interview. “But in a straightforward unilateral adopt of the Canadian dollar by Iceland where it’s clear there’s no input into monetary policy then we’d be certainly open to discussing the issue.”
Unfortunately for proponents of the idea, it seems some Canadian officials are not too open about any currency discussion.
Canadian foreign affairs spokesperson Ian Trite explained in a statement (via Toronto Star) that Bones would not be participating in an Icelandic conference to talk about currency issues. The statement also noted that Ottawa does not publicly comment on another nation’s currency.
“Once we got wind of (the speech) and it went through the approval channels, we decided it was not an appropriate venue,” said Joseph Lavoie, Foreign Minister John Baird’s press secretary, in an interview with the Globe and Mail. “It's a political event. So that the decision was made that it's not an appropriate event for him to speak at. While he may have thought about delivering those remarks, those remarks won't be delivered.”
One interesting point to note is that when the Canadian loonie was established most nations did not show any interest in using it. Since the Canadian economy is one of the best of the G8 countries, has a stable financial system and maintains a relatively sustainable monetary policy, the dollar could look attractive to not just Iceland but other nations suffering.
With Iceland entering an economic depression and its tourism, manufacturing and technology sectors not doing well enough to grow the nation’s economy, will the Central Bank of Iceland’s adoption of a loonie save the country from further economic hardship?
This story comes as former Iceland Prime Minister Geir Haarde is on trial for his alleged role in the 2008 financial crisis.