Iceland’s Loonie Idea

When Montenegro unilaterally adopted the Euro a few years ago, they might have thought of themselves as clever; adopt another, more stable currency and avoid the hassles associated with money and a Central Bank as the new state came into being after its split from Serbia. The EU wasn’t too pleased and keeps reminding the Balkan nation about that fact. But Iceland’s look into adopting Canada’s dollar, and the general agreement it’s getting from across the Atlantic, is a different story, but one that might still unlikely to play out in the near future as Icelanders consider the implications of the move. Here are some thoughts.

This isn’t a new idea. When the krona collapsed back in 2008, there were cries to try the American dollar, or the Euro, or even the loonie. But after a few months, the loudest of those calls subsided. After the initial flurry of attention, even the support to join the EU went down a little bit. While I haven’t been back to the Island since leaving just after the 2009 election, I don’t suspect that Icelanders core values have changed. As Newfoundland learned when they joined Canada in 1949, taking big decisions has a lasting impact. But Iceland and Newfoundland were heading in different directions at the time and if Baldur Thorhallsson of the University of Iceland is correct, small states will look for a shelter in time of crisis. The question is, do they still really need an economic shelter three years later after reports have constantly indicated they are doing better than thought with their IMF loans?

From the Canadian side of things, it is fairly low-risk. With an educated population the size of Victoria, BC, Iceland will not be a liability despite their current economic woes. Alcan makes a lot of aluminum there and the largest population of people of Icelandic descent is in Canada, concentrated in Manitoba’s Interlake region. Still, the EU might have something to say with the fact that one of its candidate countries is adopting another currency as its own falters – or yet again they are probably too busy dealing with that already.

Finally, Iceland is a country that is simply too proud of its independence after hundreds of years of foreign rule, to simply give up such an integral part of its sovereignty. Unlike certain aspects of sovereignty which might be more obscure and intangible, dealing with cash is a daily activity (though Iceland has a great reliance on debit/credit) and there is a pride with the fish covered kronur coins that pay for Friday night beers on Laugavegur. If this is going to happen, it has to be soon as the Independence Party reorganizes after its last election failing; it’s the first time since the nation’s independence in 1944 that they don’t have the most seats in the Alþing and I doubt that they are too pleased about this.

What Iceland is searching for is stability and a look at the graph shows how far their discredited currency has fallen. During my time there between September 2008 and April 2009, it was even more volatile than the graph suggests as it was suspended from the markets and rates were whatever the banks chose. Despite the fact that it has stabilized lately, it has certainly not improved and greatly hinders thoughts of travel abroad for Icelanders. For Canadians, it could be a welcome addition, but Icelanders also need to think of the last time they gave up such a big part of their sovereignty, in 1262 to Norway, and how long it took before they once again became independent people.