The recent discussions of the possible adoption of the Canadian Dollar by Iceland as a domestic Â unit of account and medium of exchange seem to have shot out of nowhere like a bolt from the blue. In fact, this opportunity was born of the financial crisis some four years ago and has been akin to a stew pot at the back of the stove quietly burbling away until good and ready. The writer has some knowledge of this as he had been discussing the adoption of loonie with a variety of Government officials more than two years ago. This was around about the same time that Iceland was in the midst of the Icesave referendum and being harangued by various international agencies into accepting bailout monies that it did not need, along with other financial measures that should not have and did not adopt.
Last week Canadaâ€™s Ambassador to Iceland cancelled a scheduled press conference where it was expected that he would lay out the benefits of a monetary concordat with Canada in detail. Why? Well, because the arrangement probably makes too much sense and would provide too many benefits â€“ both political and economic – to both Canada and Iceland. An assortment of vested interests, largely the same ones that were bludgeoning Iceland several years ago did not approve, and their lobbying against rationality appears to have gone into overdrive when it became readily apparent that this idea was getting some legs.
The history between Iceland and Canada stretches back well over a hundred years. Outbound emigration of Icelanders to Canada began in earnest following famines and the collapse of a set of flawed monetary arrangements within Denmark beginning in the 1870â€™s. Today there are sizable Icelandic communities in Canada. Gimli, Manitoba is in fact home to largest Icelandic community outside of Iceland. At the University of Manitoba students can learn the Icelandic language and literature. Each year the Icelandic Festival draws tens of thousands of people to Gimli including prominent politicians such as the Prime Minister of Iceland Johanna Sigurdsdottir.
This modern history of Iceland and Canada also includes a number of similarities: A keen devotion to democracy and fairness. Tolerance and respect for others. A respect for the rule of law. An affinity with nature and awareness of its frequent cruelties and the consequential need to prepare for bad times in good times and to prepare for changing weather and seasons. A sense of neighborliness accompanied by national pride, and a steely resolve to defend oneâ€™s interests. Emphasis on education and personal growth. A devotion to outdoor pursuits no matter what the temperature is.
In this latter regard it is little known, but the first Olympic Hockey Gold Medal ever was won by Canada in 1920 with a team from Manitoba named the Winnipeg Falcons. Most of the players were Icelandic Immigrants â€“ some had even fought for Canada in the First World War before achieving sports immortality in the Olympic Games.
So the bonds run deep.
But why does this matter and why adopt a different currency?
This matters because Iceland knows that it must take some important steps to establish financial risk management firewalls that will protect against a repeat of the last debacle and to also pave the way for stable, predictable growth. Not in the least this is also because Iceland now has a substantial debt burden which must be responsibly managed. Iceland has never had a large debt burden and therefore this latter issue is very important.
In the case of Iceland the costs and benefits of an altered currency arrangement are clear. In the first instance the Canadian Dollar is tied to an economy that is much larger and more stable than Icelandâ€™s yet its composition is broadly similar. Therefore the ability of Icelandic consumers, businesses and Governments to plan their activities would be greatly enhanced.
There is zero downside to this policy â€“ except that it would foreclose the possibility of adopting the Euro, an alternative that certain others have been touting. As we said two years ago to the Government: â€œWhy would you want to join a club where they beat you up at the door and rob you as the price of admission?â€ Now we understand that today 60% or more of Icelanders agree with our earlier assessment. Moreover, the Eurozone is the grip of an intractable crisis that is being mis-managed and before it is over will make it seem like what happened in Iceland since 2008 like a walk in the park. In reaction to these policy failures, Europe is fast becoming more and more undemocratic, technocratic and desperate in its efforts to cling on to the last vestiges of a failed project.
For these and other reasons, an agency like the IMF, for example, should be in favor of the adoption by Iceland of the Canadian Dollar because it would help stabilize the Icelandic economy and provide a strong bulwark against the possible recurrence of any future financial crisis similar to the last one. And apart from this, there are many other benefits that adopting the Canadian Dollar would bring, including :
- lower borrowing costs for everyone in Iceland;
- a wider and deeper pool of investors for Icelandic bank, corporate and government debt;
- The availability of deep hedging markets that would make it easier for banks, governments and companies to manage balance sheet and income statement risks. This would likely make it possible to abandon the indexation of consumer financial contracts that caused so much pain and social division during the crisis.
- Access to the North American Free Trade area becomes a possibility;
- There would be no loss of sovereignty or resource rights as there would clearly be if Iceland opted to jump into the Eurozone.
- It would be a boost to trade flows;
- The financial efficiencies would improve productivity and competitiveness in Iceland;
- Closer cooperation on stewardship and management of Arctic and undersea resources would result in a bigger voice in international fora such as the Arctic Council;
- The Loonie would provide an almost impregnable defense against any attempts to run the currency against the Icelandic Central Bank and necessitate exchange controls;
- Access to an acknowledged first rate financial and regulatory system also becomes a possibility, and even if not adopted, the forgoing benefits would trigger a changed and hugely positive ratings picture for Iceland.
Iceland does not need anyoneâ€™s permission to adopt another currency, but it would be a boon if this were done in cooperation with Canada.
This article also appears under Alex Jurshevski’s byline in the Icelandic daily Pressan and can be viewed at thisÂ link