Should we hold on to the Icelandic króna as our currency?
Published in the 2012 June-July issue of Iceland Review – IR 02.12. By Benedikt Jóhannesson. Introduction by Páll Stefánsson. Photo by Páll Stefánsson.
Thaw in the economy? Thaw at Lake Skriðuvatn, East Iceland.
The króna and Iceland’s recovery from its financial collapse in 2008 have been on the front pages of every major newspaper. Some analysts say that Iceland has a significant advantage over stressed euro-zone countries—namely, a currency that can be devalued to turn its trade deficit into a surplus and smooth its recovery. Some old-school politicians still believe in the króna, the positive value of devaluing it, and strict currency controls, which some say are stricter than in Eastern Europe under Communism. Others want to adopt the US dollar, as Ecuador and Panama did, or the super-strong Norwegian krone; others, like investment manager Hreiðar Már Guðjónsson, look towards Canada.
As resource economies, Canada and Iceland’s economic cycles are more likely to be in sync, proponents of the “loonie” (the Canadian dollar) argue. Also, Canada is home to about 200,000 people of Icelandic descent—more than anywhere else in the world outside of Iceland. “I see that connection helping the public in Iceland to accept a new currency,” said Heiðar Már to the National Post in Canada recently. Canadians are thrilled that Icelanders are singling out their country for positive attention, wrote The Economist. However, most people, think the euro is the best bet. Close to 70 percent of our imports and exports are to euro-zone countries, less than one percent to Canada. Polls show that seven out of ten Icelanders would be happy to ditch the króna in favor of a more stable currency. Publisher Benedikt Jóhannesson is one of the euro-positive voices. Here are his arguments. PS
Why we don’t need the Icelandic króna
Sometimes it happens that when people are taken hostage they suddenly start loving their captors. This famous reaction, usually referred to as the Stockholm syndrome, seems to occur regardless of the victim’s intelligence or education. The Icelandic nation has now been held hostage for almost four years. We have restrictions on how much money we can take out of the country. New foreign investment is limited because potential investors are afraid to be stuck with their money in the country forever. Yet some people love our currency, the króna, the culprit leading the nation to the brink of bankruptcy in 2008 and holding the country captive since then.
A short history of the króna
The Icelandic currency started as an offspring of the common Nordic currency króna (or crown). After World War I, the Norwegian, Swedish and Danish crowns became separate but almost equal in value most of the time. One offspring, the Icelandic króna, started a completely separate life. The Icelandic currency is now worth 0.045 percent of its value in 1920. That is a fact, and yet, some people still claim it is the best thing for Iceland.
You can read the reminder of this article in the 2012 June-July issue of Iceland Review – IR 02.12. Four times a year the print edition of Iceland Review & Atlantica brings you a wealth of articles on all aspects of life in Iceland including Páll Stefánsson's latest images of the country’s majestic landscape. Click here to subscribe and here to browse through a selection of pages from the current issue.