Huffington Post Canada - fjallar um Himbrimann (Loonie)

 

Jón Sigurðsson	forseti Íslands	Peningastefnan	Icesave-vextir	forseti Íslands	Icesave-vextir
Stjórnarskráin	forseti Íslands	Vinstrivaktin	Samtök fullveldis	Evrópuvaktin	Heimssýn

  

  

Samstaða þjóðar    NATIONAL UNITY COALITION                                                               Baráttusamtök fyrir sjálfstæðu ríki á Íslandi    og fullveldisréttindum almennings.    Stöndum vörð um Stjórnarskrá Lýðveldisins.

  

     

    

Huffington Post Canada - fjallar um Himbrimann (Loonie)

  

  

Fyrst birt í The Huffington Post Canada 12. marz 2012.

     

   

Daniel Tencer    

Faced with popular discontent over her country’s talks to join the European Union, Iceland’s prime minister appears to have opened the door to the island nation’s adoption of the Canadian dollar as an alternative.

In a speech at a party convention Saturday, Icelandic Prime Minister Johanna Sigurdardottir sounded the death knell for the Icelandic krona, saying her country faced a choice between “surrendering the sovereignty of Iceland in monetary policy by unilaterally adopting the currency of another country or becom[ing] a member of the EU.”

That is the clearest sign yet that Iceland’s government may be open to ideas other than joining the EU, and taking seriously public opinion polls showing a majority of Icelanders oppose the EU, while many support the idea Iceland should unilaterally adopt the Canadian dollar.

A recent poll found that more than 56 per cent of Icelanders oppose EU accession in the wake of the debt crises that have rocked Greece and other eurozone members. Although entry into the EU does not necessarily mean joining the euro, in practicality most countries are expected to join the common currency.

A consensus is developing among Icelanders that their currency -- which lost about 60 per cent of its value in the wake of a devastating financial crisis that hit the country in 2008 -- needs to be replaced.

Thus far, the Social Democratic Alliance-led government had indicated that it would pursue EU negotiations to that end, while the opposition Progressive Party had proposed adopting the loonie. Sigurdardottir’s comments Saturday suggested the government may also be open to adopting the Canadian currency.

A recent poll found the Canadian dollar is the most popular option among Icelanders in terms of a replacement currency.

Iceland adopting the loonie would likely have little impact on Canada, as Canada’s economy was valued in 2011 at $1.8 trillion, while Iceland’s economy is less than one per cent of that, at $14 billion.

The controversy over the loonie blew open earlier this month when Canada’s ambassador to Iceland, Alan Bones, indicated during a radio interview that Canada was not opposed to Iceland adopting the loonie. But when those comments ignited a firestorm of debate in Canada, the federal government put a halt to a speech Bones was planning to deliver, in which he would reiterate Ottawa’s openness to the idea.

Although the Bank of Canada has previously indicated it, too, doesn’t oppose Iceland using the loonie, its more recent comments have been noncommittal.

And it’s unclear how committed supporters of the idea really are. The Economist reports that Sigmundur Gunnlaugsson, leader of the opposition party championing the loonie idea, suggested that support for the proposal was a ploy meant to get Iceland’s government to consider ideas other than joining the euro.

“It’s not like we are fighting for the adoption of the Canadian dollar,” Gunnlaugsson was quoted as saying.

Some economists have questioned whether Iceland adopting the loonie would be good for Iceland -- or Canada.

"The government of Iceland would presumably be issuing Loonie bonds. Given the recent experience of the Eurozone, governments borrowing in a foreign currency -- which they cannot themselves print -- does not look like a very stable arrangement," economist Nick Rowe blogged. "If the Eurozone has very weak fiscal relations, those between Iceland and Canada are non-existent. Would Canada be expected to play Germany to Iceland's Greece?"

 

 

Canada's new plastic money

 

 

Nick Rowe er með vangaveltur um upptöku Himbrimans, sem ég hef að nokkru leyti svarað á vefsetri hans. Þar sem færslan mun týnast fljótt, birti ég hér vangaveltur hans og svör mín.

   

Rowe spyr:

  

1. Is Canada+Iceland an Optimal Currency Area? Is Canada one of Iceland's main trading partners for imports and exports? Is there high labour mobility between Canada and iceland, so that unemployed Icelanders could easily get jobs in Canada, and unemployed Canadians could easily get jobs in Iceland? Are macroeconomic shocks to Canada and Iceland highly correlated? None of these claims sound very plausible.

2. Who does Iceland imagine would act as lender of last resort to Icelandic banks? In 2008 Iceland's banks defaulted on their foreign currency liabilities. I am very glad that the Bank of Canada was not obliged to act as lender of last resort to Icelandic banks in 2008. Does Iceland think it can manage without a lender of last resort to its banking system? It didn't work so well in 2008.

3. The government of Iceland would presumably be issuing Loonie bonds. Given the recent experience of the Eurozone, governments borrowing in a foreign currency -- which they cannot themselves print -- does not look like a very stable arrangement. If the Eurozone has very weak fiscal relations, those between Iceland and Canada are non-existent. Would Canada be expected to play Germany to Iceland's Greece?

4. If there were a financial crisis in Iceland, is there any possibility that could spillover and affect Canada's financial markets and the exchange rate? Would the Bank of Canada be forced to act as lender of last resort to Iceland's government or banks in order to protect Canadian financial markets and the exchange rate from the fallout?

5. If Canada decided that it was not in Canada's national interest for Iceland to adopt the Loonie, is there anything Canada could actually do to prevent Iceland unilaterally adopting the Loonie?

6. (Update) One clear benefit to Canada would be the extra seigniorage revenue. Assume Iceland's GDP is 1% of Canadian GDP, the currency/GDP ratio is 5%, and the long-term nominal interest rate is 4%. The extra seigniorage from iceland adopting the Loonie would be 1% x 5% x 4% = 0.002% of Canadian GDP (somebody check my math please).

    

Mín svör:

1. Adopting the Loonie will be equivalent to adopting gold as Iceland’s currency or setting up a currency board using USD as a reserve. This is part of Rule-bound Monetary Policy, adopting a fixed exchange rate as opposed to Discretionary Monetary Policy using a floating exchange rate. For small economies a fixed exchange rate is a MUST.

2. A lender of last resort to banks has proven extremely dangerous. There is no reason to give such a support to the high flying bankers. All countries should abolish the “lender of last resort” concept and this is in fact inclusive in the Rule-bound Monetary Policy.

3. During the years before the Crash, the Icelandic Treasury was dept free. Treasuries should not be allowed to collect dept. Therefore, the Icelandic state should not have any need to issue Loodie bonds. Anyway, most states issue bonds in foreign currencies if needed.

4. Why should there be a financial crises in Iceland using a stable currency like the Loonie ? One of the reasons for the Crash was the volatile Icelandic Krona.

5. One of the reasons why the Loonie is so interesting for Iceland is because the common currency would benefit both countries. We wish to increase our relationship with Canada in many areas, not the least regarding the North Pole regions.

6. One of the conditions of Iceland for adopting the Loonie will be that Canada drops seigniorage on the currency used within Iceland. This is an almost fixed amount. Therefore you can stop your calculations.