UPDATE: The government of Canada is backing away from a proposal for Iceland to adopt the Canadian dollar, cancelling a speech by a diplomat that would have announced Ottawa is not opposed to the idea.
“Once we got wind of [the speech] and it went through the approval channels, we decided it was not an appropriate venue,” Joseph Lavoie, press secretary to Foreign Minister John Baird, told the Globe and Mail. “It’s a political event. So that the decision was made that it’s not an appropriate event for him to speak at . . . While he may have thought about delivering those remarks, those remarks won’t be delivered.”
A Canadian official told the Wall Street Journal that Ottawa is "not endorsing" a proposal popular within Iceland’s opposition Progressive Party to have Iceland replace its struggling krona with the loonie.
The party has opposed Iceland’s bid to join the European Union, and proposed switching to the Canadian dollar as a way to stabilize its economy without tying itself to the struggling euro area. Popular support for joining the EU and the euro has dropped sharply in Iceland, in the wake of the Greek debt crisis. However, talks to enter the European Union continue under the ruling Social Democratic Alliance party.
In a blog posting Sunday, Carleton University economist Nicholas Rowe suggested Icelandic adoption of the Canadian dollar could end up costing Canada money, if the Bank of Canada is expected to act as a "lender of last resort" to Iceland should another economic crisis hit the country.
Iceland can use the Canadian dollar if it so wishes, Canada’s ambassador to the country is expected to say Saturday.
According to a report in the Globe and Mail, Alan Bones is expected to give a speech to Iceland’s opposition Progressive Party announcing that Canada won’t object to Iceland unilaterally deciding to use the loonie -- so long as the Nordic country is aware of the risks.
Economists in Iceland suggested last summer that the country could stabilize its economy by adopting the Canadian dollar.
Iceland’s economy suffered a crushing blow in 2008 when its banking sector went bust, causing its currency to collapse. The krona lost about 60 per cent of its value and has not recovered. To stabilize the economy, the government instituted currency controls that prevent anyone from taking more than the equivalent of $3,000 out of the country.
That has made Iceland an unattractive place for foreign investors. The currency controls are slated to come down, but many Icelandic economists worry that will mean a return to economic instability. Some of them have suggested simply replacing the Icelandic krona with another, more stable, currency.
In a recent poll, some 70 per cent of Icelanders said they would favour dropping the krona in favour of a foreign currency, and the Canadian dollar was the most preferred option, the Globe and Mail reports.
Canada’s currency has developed a very positive reputation around the world, thanks to its solid run-up in value in recent years -- largely due to energy exports -- and due to the perception that Canada avoided the financial crisis that hit banks in the U.S., U.K. and elsewhere.
For Canada, having Iceland use the loonie would likely have little effect. Canada’s economy was valued at $1.8 trillion in 2011, while Iceland, with a population of around 315,000, had an economy of around $14 billion. Canadian policymakers would barely have to take into account Iceland’s use of the loonie when setting policy.
The Bank of Canada reflected this reality when it previously said it had no problem with Iceland adopting the Canadian dollar.
But it’s for that same reason that Canada’s ambassador to Iceland is expected to warn Icelanders that adopting the loonie can come with risks.
As the Greek debt crisis has shown, countries can suffer serious economic difficulties when they can’t control their own monetary policy. Many economists argue Greece would have had a much easier time bringing itself out of a debt crisis if it had been able to devalue its own currency, essentially shrinking away its debt. But because Greece uses the euro, whose policies are made at the European Central Bank in Frankfurt, that was not an option.
Iceland may face similar problems if it chooses to adopt the loonie. If Canada sets its interest rate too high or too low for Iceland’s economic conditions, it could cause economic distortions such as recession or excessive inflation.
For Icelanders, however, fear of a return to the instability of 2008 may be a more pressing issue, and there may be another factor -- a romantic view of Canada and its economy.
“The average person looks at it this way: Canada is a younger version of the U.S. Canada has more natural resources than the U.S., it’s less developed, has more land, lots of water,” economist Heidar Gudjonsson of the Research Center for Social and Economic Studies told the Globe. “And Canada thinks about the Arctic.”
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The New $5 Bill
Source: <a href="http://www.flickr.com/photos/bankofcanada/8693039417/sizes/c/in/photostream/" target="_blank">Bank Of Canada, Flickr</a>
The New $5 Bill
From <a href="http://www.flickr.com/photos/bankofcanada/8694157272/in/photostream" target="_blank">Bank Of Canada, Flickr</a>: "Robotics innovation is Canada’s ongoing contribution to the international space program and demonstrates our commitment to space exploration. The Canadian-built Mobile Servicing System is the sophisticated robotics suite that helped to assemble the International Space Station in orbit. This system consists of Canadarm2, Dextre and the Mobile Base.
On board the space station—a permanent orbiting research laboratory—international partners conduct scientific experiments, many of which result in an enhanced quality of life on earth. Canada’s contribution to the space program evokes pride and sparks the imagination and curiosity of our future leaders in science and technology."
The New $10 Bill
Source: <a href="http://www.flickr.com/photos/bankofcanada/8693039429/sizes/c/in/photostream/" target="_blank">Bank Of Canada, Flickr</a>
The New $10 Bill
From <a href="http://www.flickr.com/photos/bankofcanada/8693039423/in/photostream" target="_blank">Bank Of Canada, Flickr</a>: "The expansion of the railway in the 1880s was hailed as a remarkable feat of engineering for a young country with a varied and often treacherous terrain. At the time, the railway was the longest ever built, and its completion demonstrated Canada’s pioneering spirit by linking our eastern and western frontiers, connecting people, and facilitating the exchange of goods.
Today, The Canadian train, winding its way through the Rockies showcases Canada’s natural beauty and symbolizes what we accomplished as a young nation."
The New $5 And $10 Bills
Bank of Canada governor Mark Carney unveils the new polymer $5 and $10 bank notes during a press conference at the Bank of Canada in Ottawa on Tuesday, April 30, 2013.
The New $5 And $10 Bills
Finance Minister Jim Flaherty unveils the new polymer $5 and $10 bank notes during a press conference at the Bank of Canada in Ottawa on Tuesday, April 30, 2013.
The New $10 Bill
A new polymer $10 bank note is displayed during a press conference at the Bank of Canada in Ottawa on Tuesday, April 30, 2013.
Astronaut Chris Hadfield Displays The New $5 Bill
Astronaut Chris Hadfield poses for a photo with a new polymer $5 bank note on Tuesday, April 30, 2013.
Twitter reaction to plastic money
Twitter reaction to plastic money
Twitter reaction to plastic money
Twitter reaction to plastic money
Twitter reaction to plastic money
Joel Klebanoff
New $5 and $10 bills are being launched. All of our bills are going plastic. Why does that bring the film The Graduate to my mind?
Andrew Coyne
Even that would be better. @InklessPW: Wells designs new bills. What'll we put on the 5? Oscar Peterson. The 10? Peterson. 20? Glenn Gould
Cory S.
Wait so there's no more quote from the Hockey Sweater on the new $5 bills? #manifencours
Tabatha Southey
New bills should be 5 pin bowling for the $5, a Robertson screwdriver for the $10, a Canadian flag, draped over a picnic bench on the backs.
LauraBeaulneStuebing
Theory about the new $5 and $10 bills: They're ugly enough that we don't want to keep them in our wallets.
Paul Wells
Paul Wells designs the new bills. "What'll we put on the 5?" "Oscar Peterson." "And on the 10?" "Oscar Peterson." "20?" "Glenn Gould."
Wesley Fok
Was expecting the new $5/$10 bills to literally have pictures of poop on them, based on the outcry. Surprise: they look like money!
Patrick Meehan
Q: You're the federal government, what do you put on the new 5$ and 10$ bills? A: Things you've cut funding to. http://t.co/jqT3BLmENc
Jason Rehel
Everyone is pretty damn hung up on the AESTHETICS of the new $5 and $10 bills in Canada. Me? I'd like money that WORKS in vending machines
Brittlestar
@Cmdr_Hadfield Dude, with all the stuff you’ve had up there (guitars, Easter eggs, new $5 bills), how BIG was your suitcase?
The New $20 Bill
Hand holding up the new polymer Canadian $20.00 bill.
The New $20 Bill
Some new polymer twenty dollar bills, which is the most widely used bank note in the country, are pictured at Montreal on November 19, 2012.
The New $20 Bill
The Bank of Canada introduced the plastic see-through $20 bill on May 2, 2012.
The New $50 Bill
Bank of Canada Governor Mark Carney holds a new $50 bill while standing in front of the Canadian Coast guard ship Amundsen Monday, March 26, 2012 in Quebec City. The Amundsen is displayed on the back of the new bank note made of polymer.
The New $100 Bill
Bank of Canada Mark Carney shows off the bank's new circulating $100 bill, Canada's first polymer bank note, in Toronto on Monday Nov. 14, 2011.
The New $100 Bill
The $100 bill was the first of Canada's paper denominations to go plastic and see-through.
Australia's polymer note
An Australian 100 dollar polymer note is displayed above various international currencies. AFP PHOTO / Torsten BLACKWOOD
Australia's polymer note
AFP PHOTO / Torsten BLACKWOOD
Mexico's polymer note
A Mexican pesos note made out of polymer material. Alfredo Estrella/AFP/Getty Images
Mexico's polymer note
Mexico City, MEXICO: A sample of the new 50 Mexican pesos' note made out of polymer material to hinder its forgery, 14 November, 2004 in Mexico City. AFP PHOTO/Alfredo ESTRELLA (Photo credit should read ALFREDO ESTRELLA/AFP/Getty Images)
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The Huffington Post Canada Daniel Tencer First Posted: 03/ 2/2012 1:34 pm Updated: 03/ 4/2012 12:13 pm