Iceland should adopt the Canadian dollar

 

  
  
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Iceland should adopt the Canadian Dollar


Birtist fyrst í Embassy  28. marz 2012.
»Canada's foreign policy newsweekly« 

 
 


David James Meadows.

                                 
Recently it was reported that there was increased positive movements brewing in Iceland advocating for the adoption of the stable Canadian dollar to alleviate Iceland’s long-term currency woes, and historically high levels of inflation.
  

Certainly, the current problems that the eurozone is facing, resulting from the ongoing Greek debt crisis, have been a major contributing factor in shifting Iceland’s formerly exclusive focus on moving towards adopting the euro towards the apparent stability that the loonie offers.

                                 

Although Icelandic broadcaster RUV announced recently that Canadian Ambassador to Iceland, Alan Bones, would be discussing the matter with Icelandic economic actors in a past meeting in Reykjavik on March 3, his participation was cancelled, and such prospects were further downplayed by officials at the Department of Foreign Affairs and International Trade in Ottawa.   
                                 

However, regardless of the fact that the prospects of Iceland adopting the Canadian dollar also appeared less likely when Icelandic Economic Affairs Minister Steingrímur J. Sigfússon recently stated that the adoption of the loonie was not on the table, it is the position here that officials in Ottawa reacted too hastily.

  

Instead, the Canadian government, acting through soft-power diplomacy, should be working proactively to encourage such a move on the part of Icelanders—especially if Reykjavik signals its intentions to talk, as Iceland’s adoption of the Canadian dollar would be in the long-term political, economic and strategic interests of Canada.

  

While a recent article in the Toronto Star titled “Iceland and the loonie: Why adopting the Canadian dollar might lack currency” also painted such prospects in a negative light, little hard evidence was given in regards to how this would be negative for Canada.

  

Instead, much of discussion focused on the potential negatives for Iceland, such as the obvious fact that Reykjavik would essentially surrender control over monetary policy and interest rates to the Bank of Canada.

  

However, one could respond that the same prospects would be virtually assured if Iceland surrendered its monetary policy to the European Central Bank in Frankfurt— which could prove increasingly problematic for Icelanders considering the current debt crisis that the eurozone is facing.

    

Moreover, regardless of the above statements by Mr. Sigfússon downplaying the prospects of Iceland adopting the loonie, politics can change fast, and Iceland might increasingly have to look to alternative options other than the euro.

                                 

Considering that domestic support for joining the European Union has been steadily dropping fast, the current Icelandic governing coalition of social democrats and left greens could find it increasingly problematic if they were to focus entirely on solving Iceland’s currency woes by adopting the euro via accession to the EU.
                                 
Such domestic obstacles can be seen from a recent Capacent Gallup poll, where 56.2 per cent of Icelanders polled responded that they are against EU membership, and that if they had to vote in a referendum on joining the EU, 67.4 per cent said they would vote no.
                                 
Alternatively, with over 70 per cent of Icelanders in another poll also responding that they were supportive of Iceland adopting the Canadian dollar, the option of the loonie might prove to be the safest and most prudent choice for the Icelandic government. Here, it is important to note that while not formally members of the EU, Icelanders already enjoy access to free trade with Europe’s common market via the European Economic Area, as well as the free movement of people via the Schengen Agreement.
                                 
As a result, adoption of the Canadian dollar would mean that Iceland could retain these privileged benefits, while at the same time not having to surrender sovereign control over its fisheries and agriculture, which Iceland would have to do if it opted for EU membership.
                                 
Overall, the benefits of Iceland adopting the Canadian dollar would far outweigh any negative side effects, which would largely be negligible for Canada. Indeed, Icelandic use of the Canadian dollar would come with little risks, as this would not be a currency union, and control over monetary policy decision-making would remain firmly in the hands of Canadians in the Bank of Canada.

  

Most importantly, just the prospect of such a move by Iceland would serve to further reinforce and strengthen the Canadian dollar, thus increasing Canadian purchasing power and prestige internationally.

  

Many other economic benefits would result as well, as Iceland’s adoption of the loonie would facilitate further increased commerce and trade between the two countries.

  

In doing so, this would help increase key opportunities for Canadian exporters via the diversification of Canadian export markets. These ties would have important benefits for important Canadian economic sectors in fisheries, natural resources and raw materials.

                                 

Indeed, Canadian international aluminium giant Alcan already has an impressive and noticeable presence in Iceland, as one passing on the highway from the Keflavik airport to Reykjavik can see as they drive past the large Alcan aluminum smelter on the way.

  

Certainly, the increased ties that would come as a result of the Icelandic adoption of the Canadian dollar would only serve to further enrich such already close economic links.

  

Additional benefits would also accrue, which would involve increased opportunities for valuable mutually beneficial exchanges in education, culture and the arts, as well as the prospect of increased tourism between the two countries.

  

Indeed, such bonds would be facilitated by the fact that Iceland is one of the most anglophile countries in Europe, as almost the whole population speaks English as their second language.

  

Aside from the economic benefits, such a move by Iceland would also have important strategic benefits in helping Canada further reassert its position as a dominant and influential power on the world stage. Certainly, the cementing of strong relations between the two countries would be of important benefit to Canada’s long-term strategic interests, especially in regards to promoting Canada’s sovereignty claims in the Arctic.

  

Closer relations resulting from such increased political, economic and diplomatic ties would also certainly give Canada a sympathetic ear from Icelanders and a key ally in helping to promote Canada’s Arctic interests.

  

As a fellow Arctic nation, having Iceland on our side would help promote Canada’s goals in the Arctic, not only in giving Ottawa added political weight and moral support in disputes with Russia, but also in dealing with infringing boundary claims from the United States and Denmark.

                                 

Finally, as one who has travelled to Iceland extensively, I can report that it should come as no surprise to Canadians that Icelanders consider Canada as one of their closest friends and as an ally.
                                 
The Icelandic adoption of the loonie would only serve to further cement the close bonds between our two countries, and facilitate beneficial partnerships for the foreseeable future. Should the time come, such a move on the part of Reykjavik should be welcomed and encouraged by Ottawa, as it would be in the long-term political, economic and strategic interests of Canada.

  
  

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David James Meadows is a doctoral candidate in political science,

and a doctoral fellow with the Centre for Foreign Policy Studies

at Dalhousie University. 
      
 
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