When we published an article last November on a campaign in Iceland to adopt the Canadian dollar, the notion seemed more like the plot of a whimsical satire than a sombre issue of monetary policy. Think of it: an eccentric little country with a population smaller than Halifax seeks to reverse its sagging fortunes through an unlikely partnership with a shy-yet-stable energy superpower. Cast Martin Short as the Canadian ambassador, Molly Parker as his tart-tongued aide and Christopher Plummer as the entire nation of Iceland—you’ve got the opening-night film for next year’s Toronto International Film Festival. We didn’t doubt the sincerity of the idea, nor did we play it for laughs. Senior writer Joe Castaldo’s reporting from Iceland, still recovering from the failure of three major banks in October 2008, was a well-nuanced portrait of a country in transition. But replacing the krona with Canadian currency seemed too, well, loony to be viable.
But if the idea is a joke, it has now become a running gag. While Iceland continues to pursue membership in the European Union, its citizens are increasingly disenchanted with the prospect of becoming an unstable economy inside a slightly less unstable economic union. The problem is, a full 70% of Icelanders support eliminating the krona, and the Canadian dollar is proving to be a more popular alternative than the American dollar or the Norwegian krone. Faced with this national mood, Icelandic Prime Minister Johanna Sigurdardottir publicly acknowledged the possibility of “unilaterally adopting the currency of another country” as an alternative to EU membership. Most intriguing, Canada’s ambassador to Iceland told a radio station that Ottawa would “certainly be open” to discussing the idea.
If this is a serious proposal, is there any benefit to Canada? Sure, although the upsides run from the arcane to the intangible. Countries actually generate revenue from printed currency, thanks to “seigniorage,” or the difference between the cost of production (roughly 9¢ per bill) and its face value. Additional revenue comes from interest generated when the Bank of Canada invests the proceeds of issuing bills in government securities. If Iceland replaced its entire existing currency supply, the seigniorage would bolster Canadian coffers; an extremely rough calculation places the amount between $13 million and $15 million annually, although arriving at those figures requires several leaps of faith.
Iceland’s adoption of our currency might also boost Canada’s efforts to protect its Arctic sovereignty. Both Iceland and Canada are members of the Arctic Council. An alliance might increase their clout against the United States and Russia.
It’s doubtful most Canadians care about (or are aware of the existence of) seigniorage—or the Arctic Council, for that matter. Yet there has been mounting fascination in this story. If anything, this is a matter of national pride or, perhaps more accurately, national ego. For years, the American dollar dominated the world economy. But now, in this lacuna between the descent of the greenback, the collapse of the euro and the rise of the yuan, Canada has a moment to be the darling of global currency. Iceland’s unexpected interest is a boost to our esteem. And, like any flirtation, it should be taken as a compliment on its own.