2.4.2012 | 23:21
Iceland moving closer to adopting the Canadian Dollar
forseti Íslands | |||||
forseti Íslands |
Iceland moving closer to adopting the Canadian Dollar02. apríl 2012.
For several months, Iceland and Canada have been discussing if Iceland should adopt the Canadian Dollar as a legal tender for the country. Basically there are two possibilities, which both are variants of Rule-bound Monetary Policy. Under these monetary regimes, the exchange rate of the money used in Iceland will be securely fixed to the Canadian Dollar. The first option is that Iceland could start using the Loonie under a system called Dollarization regime, which means that the Dollar is adopted as the only legal currency of Iceland. One of the great advantages with Dollarization is the abolition of the Icelandic Central Bank, which for decades has been a constant source of economic mistakes. Under the Dollarizion regime, the country does not even require a Currency Board. The Bank of Canada issues the money needed for Iceland as well as Canada. The other possibility for a fixed exchange rate arrangement is adopting a Currency Board regime. This means that there will be two legal currencies in Iceland, the Loonie and a local currency which could be called Ríkisdalur (State Dollar). A currency by the same name was the first official money to be used in Iceland. Ríkisdalur was in use from1778 until the Króna was adopted in 1885. The Currency Board will issue the Ríkisdalur and hold in reserve say 10% more of the Loonie than it has issued in Rikisdalur. Ríkisdalur from 1815. Under the Currency Board regime both the Canadian Dollar and the Ríkisdalur will be legal tender and therefore both will be in circulation in Iceland. Unless the Bank of Canada supplies Dollars at cost prices, seigniorage will be lost for the Dollars in circulation. This will make it necessary for the Currency Board to remove Dollars out of circulation, as much as possible and replace them with Ríksdalur. Last week a delegation from Iceland visited Ottawa and had discussions with the Bank of Canada, Department of Finance, Members of Parliament and members of several independent organizations. In the group was the Economic Minister of Iceland Steingrímur J. Sigfússon. Today 02 April 2012 the minister gave a press review of the visit to Canada and the progress made towards adoption of the Loonie.
Steingrímur J. Sigfússon Although the minister was cautious in his assessment of the situation, he said that the visit had made him optimistic about further cooperation between Iceland and Canada and not only regarding a common use of the Canadian Dollar. The two states have many common interests and the strong cultural ties between the countries will help resolve any obstacles that may appear. The minister stressed the importance of careful analysis of the economic benefits associated with a close cooperation between the two countries. This will be done during the coming weeks and one of the likely outcomes of the visit is sending a study group to Ottawa, in order to learn from our friends there and remove any misunderstanding which may exist. Canada has admirably steered though the recent worldwide economic turmoil and this is especially apparent in comparison with the European Union. Such stability as Canada has obtained is what Iceland needs in monetary matters. Besides monetary cooperation, Iceland and Canada should join hands in various areas, particularly regarding exploration and conservation of the Northern regions. Cultural ties between the two nations are strong with more people of Icelandic descent living in Canada than anywhere else outside of Iceland. |
