For 150 years, no country has expressed interest in adopting the Canadian dollar — the poor cousin to the coveted greenback.
But now tiny Iceland, still reeling from the aftershocks of the devastating collapse of its banks in 2008, is looking longingly to the loonie as the salvation from wild economic gyrations and suffocating capital controls.
And for the first time, the Canadian government says it’s open to discussing idea.
In brief remarks to be delivered Saturday in Reykjavik, Canadian ambassador Alan Bones will tell Icelanders that if they truly want the Canadian dollar, Canada is ready to talk.
But he will warn Icelanders that unilaterally adopting the loonie comes with significant risk, including complete loss of control over their monetary policy because the Bank of Canada makes decisions only for Canadians and the Canadian economy. He’ll caution, for example, that giving up the krona in favour of the Canadian dollar (CAD/USD-I1.01-0.004-0.35%) will leave the country with few levers, short of layoffs, to counter financial shocks and fluctuations in the loonie.
A group of prominent Icelandic business leaders approached Mr. Bones last year about the idea. And his speech Saturday, to a meeting of the opposition Progressive Party, marks Canada’s first public response.
The Bank of Canada, which referred all calls to the Finance department remains tight-lipped.
“We don’t speculate on another country’s currency or domestic issues,” Finance department spokesman Jack Aubry said.
There’s a compelling economic case why Iceland would want to adopt the Canadian dollar. It offers the tantalizing prospect of a stable, liquid currency that roughly tracks global commodity prices, nicely matching Iceland’s own economy, which is dependent on fish and aluminum exports.
There’s also a more sentimental reason.
“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,” explained Heidar Gudjonsson, an economist and chairman of the Research Center for Social and Economic Studies, Iceland’s largest think tank.
“And Canada thinks about the Arctic.”
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