The economic downturn has claimed many victims: individual citizens, corporations, countries and potentially entire monetary unions (such as Greece in the euro). Iceland is no stranger to economic hardship, becoming the first nation to declare sovereign bankruptcy in years when it did so in 2008. In order to jumpstart the economy, use of the loonie is on the forefront of debate. The addition of Greenland to the mix only adds to the drama gripping the world financial system.
Discussions about adopting the Canadian dollar as the official currency for Greenland and Iceland are gaining new currency as Heidar Gudjonsson, an investment manager and the chairman of Iceland’s Centre for Social and Economic Research, advocates for the adoption of the loonie in order to stimulate the local economy and jumpstart demand.
Currently, Icelanders labor under strict currency controls following the total collapse of the Icelandic krona. The currency controls currently in place are so that Iceland can prevent wealth from fleeing the country, even though the krona is essentially worthless. The adoption of the loonie comes fraught with political considerations, not least among which is Iceland’s surrender of some degree of sovereignty to Canada.
The ruling Social Democrats want to adopt the euro while the opposition Progressives have advocated for the Canadian dollar for some time. There are many advantages for Iceland to link to the Canadian dollar: geographic proximity, a booming trade relationship between the two states, and having commodity exports as an economic foundation.
The loonie is more popular than the euro or the Norwegian krone in the eyes of Icelanders, and the move would be relatively painless, literally only requiring a flight to Canada by Iceland’s finance ministers to withdraw the equivalent of $300 million in currency. $300 million is the amount that would be needed because that is the amount of the krona now in circulation. Iceland could do this unilaterally without Canada’s approval. This union could become the basis for a multilateral Arctic monetary union involving Iceland, Canada and recently independent Greenland.