Even four years after the collapse of Iceland’s economy, investment in the once much-fancied krona waivers.
Now, a seemingly left-field solution has been thrown into the mix: to reboot Iceland’s circumstances, the Nordic European island should adopt the Canadian loonie as its national currency.
While some Canadian folk believe the move could be detrimental to their country, investment advisor and Newfoundlander, Larry Short, has given it two very enthusiastic thumbs up.
“It will not have a dramatic effect on Canada because the Canadian economy is so much larger than Iceland’s,” Short says.
“It will have a huge effect on Iceland. Iceland needs to move to a new currency to enable its economy to grow further.”
“Of course, for Iceland this does mean tying itself to the monetary policy of a government where Iceland’s citizens have no vote or input. This is not to be taken lightly.”
Others believe the euro is the more obvious currency choice for Iceland, but Short reckons the benefits of adopting the loonie would be more profound. He cites the two country’s long history as a winning omen, dating back to 1000AD when Icelandic Vikings rocked up on the Newfoundland coast.
“Lief Ericson landed in Newfoundland and Labrador well before Columbus. He came across during the turbulent times of his era.”
“I think we should welcome back the Vikings as having a right to reach across the ocean to the new world. It is literally allowing Iceland to turn over a new Leaf.”
Plus, the euro zone ain’t no bed of roses itself, according to Short.
“The euro and the attendant euro zone have their own troubles while the Canadian economy and the Canadian government finances are in much better shape.”
“Canada is one of the few countries still having a triple A credit rating across all rating agencies.”
Will investors return to a loonie-led Iceland?
In the wake of Iceland’s 2008 meltdown, the country has relatively high interest rates and currency controls.
“The currency controls restrict the amount of money that can be taken out of the country and this makes foreign investors very leery,” according to Short.
“Moving to a currency such as Canada’s would lift the… restrictions and cut interest rates almost in half.”
Or should Iceland simply continue to batten down the hatches?
“Iceland has actually come out of the crisis pretty well,” Short says.
“The Icelandic economy is out of its recession, unemployment is down to 6.6% (April 12) and its cost of borrowing is well below that of Portugal, Spain, Italy and Greece after peaking at 18% in 2008.
However: “The move to the Canadian dollar would encourage further growth and stability.”
If Iceland adopts the loonie, should Greece adopt the Aussie dollar?
Nope, Short says. “Or at least, not yet.”
“Adopting the Australian dollar would do nothing for Greece right now.”
“If Greece were to follow Iceland’s lesson it would have to move back to the drachma to devalue it… and only after the economy stabilised look to move to a currency like the Australian dollar.”
“Finally, Greece is a much larger country (11 million people) than Iceland (360,000 people) and as a percentage of the Australian economy, Greece is proportionally larger than Iceland is of Canada.”
“There could be risks to Australia if Greece adopted the Aussie dollar.”