Iceland is not going to adopt the loonie as its currency, the country’s minister of economic affairs has said.
In an interview with the Wall Street Journal Tuesday, Steingrímur Sigfusson said adopting the Canadian dollar is "not a ridiculous idea in my mind, but neither is it for the time being something we are considering as the government."
That may put to rest weeks of speculation about Iceland’s flirtation with the loonie, which exploded when Canada’s envoy to Iceland, Alan Bones, commented in a radio interview that Canada would not oppose the North Atlantic island nation from unilaterally adopting the dollar -- something the government in Ottawa later appeared to back off from.
The idea that Iceland should adopt the loonie was first thrown around last summer, and was championed by Iceland’s opposition Progressive Party as a way of highlighting that the Nordic country has options outside of joining the euro.
Iceland is currently in negotiations to join the European Union, but public support for the idea is dropping, while public support for joining another currency is growing. A recent poll named the Canadian dollar as the most popular option among Icelanders.
Iceland’s krona lost some 60 per cent of its value during the financial crisis of 2008, when many of its banks collapsed, and the currency has not recovered. Icelanders see adoption of another currency as a way of avoiding future currency instability.
Sigfusson told the Wall Street Journal that he is an “admirer” of Canada, but his government will continue to pursue EU accession talks, and will decide at a later time whether to adopt the euro or keep the krona.
Analysts say that Iceland’s use of the Canadian dollar would have had little impact on Canada, given Canada’s $1.8-trillion economy and Iceland’s $14-billion economy. But Simit Patel at Seeking Alpha writes that Iceland adopting the loonie would be “the kind of event that could trigger a sharp spike” in the dollar’s value -- something that Canada’s exporters would have mixed feelings about, given the already high value of the loonie.
Patel argues that Iceland’s flirtation with the loonie reflects as much on the state of the U.S. dollar as the Canadian one.
This is “yet another example of how the world is psychologically shifting away from the U.S. dollar, a consequence of a policy running over a decade long of low interest rates, sharp expansion of the money supply, and budget and trade deficits,” he writes.