Friday, March 2, 2012

Canada ready to discuss letting Iceland share currency

In an interesting turn of events, it appears that Canada is ready to discuss letting Iceland use the Canadian Dollar as its internal currency.

On the one hand immediate thoughts turn to the consequence of Europe permitting Greece to adopt the Euro as its national currency, and fears that Iceland might become to Canada what Greece has become to Europe. But Iceland is not Greece.

Iceland has a tiny population compared to Canada, and an industrious workforce, that has been self sufficient these last thousand years. While there perhaps might need to be checks and balances on borrowing, I don't see why including Iceland in the block that uses the Canadian dollar, should alarm anyone more than are already alarmed by the ability of each of the provinces of Canada to rack up provincial debt on that same Canadian dollar.

So presuming that Icelanders were shopping for a currency, what advantages would they derive from employing the Canadian dollar as their currency. Since the obvious alternative is the Euro, right now the Canadian dollar appears more robust. Buying into the Euro would implicitly mean buying into the bailout of Greece, and potentially other European nations with similar difficulties. Long term, I expect the Canadian dollar to continue to rise against the US Dollar.

The US is horribly over-extended, without seemingly the political will to address its deficit. As is said jokingly of the US, "a billion here, and a billion there, and pretty soon you are talking real money". In addition the US dollar derived much of its historic economic strength from being the defacto reserve currency which until recently nations tended to horde against some future rainy day. The days of the US dollar being a trusted currency given its recent collapse in value are over.

Love to know what Icelanders think about the preferred Icelandic currency.

Icelandic Economists argue for the Canadian Dollar over the Euro


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