The Icelandic economists suggesting that their country should adopt Canada’s currency are paying this country a well-deserved compliment: Canada has weathered the global economic storm admirably – better than any other country in the world, really.
But when Icelanders begin thinking about dumping the krona, perhaps they could get even more creative than adopting the loonie – perhaps they could move instead to linking their currency to gold.
What might sound like a silly joke, a bad punch line to a “So Ron Paul walks in a Reykjavik bar…” setup, could make a degree of sense given that Iceland has little to lose, and the small country has already shown itself willing to adopt libertarian-like market-oriented economic measures to try to pull itself out of debt and recession.
Consider: In recent years, Iceland has both adopted a flat-rate individual income tax and aggressively cut its corporate tax rate. (It could very well have a few things to teach us in this regard.)
Icelanders are sick of dramatic currency fluctuations, so having a fixed asset as their currency’s base would make sense since it would offer the nation much sought-after economic stability.
That is not to say that moving to gold would be easy. Certainly, flying in a planeload of Canadian money would be simpler (and a more amusing visual). But gold would offer a more reliable and steadying influence on money growth. Plus, it’s not like transitioning to gold would not mean that Icelanders would have to lug big chunks of metal around in their wallets. They’d still be able to issue paper money and coins – it’s just that these bits of paper and metal would all be redeemable for actual gold.
Peter Krauth, a global resources specialist at Money Morning, has been thinking along the same lines for Iceland. “Gold would be a much better choice [than the loonie],” Mr. Krauth wrote back in March, when talk of Iceland adopting Canada’s currency first surfaced. He said, “With a gold standard, inflation, budget deficits and debt are all but eradicated, since the supply of gold becomes the limiting factor.”
As for the costs involved in moving to a gold standard, they could very well be less than those involved in adopting the loonie: Iceland could keep the krona, but tie it to gold, thereby obviating the need to change denominations on price tags and bank accounts and the like.
Canada has done a superior job of maintaining its economic footing in difficult times, but as Mr. Krauth points out, “Canada is no model of fiscal restraint either. Most levels of government carry large debt levels. In the wake of the 2008 financial crisis, the federal government is running a $31 billion annual budget deficit.” So when starting anew, Iceland would find a steadier long-term friend in gold than in the Canadian dollar. It would be great to see the small nation take a bold chance – and make Ron Paul’s day.
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