Is unilaterally adopting a new currency our answer?

In the last few days, there has been major buzz around an idea outlined by two economists in an article in Fréttablaðið last Saturday, which revolves around Iceland unilaterally adopting a new currency – without taking a loan from the International Monetary Fund.

The article outlines how this would be done, and by the sounds of it, it seems pretty simple. The way I understand it, and put in its simplest form, it entails Iceland using its current foreign currency reserves to buy reserves of the currency it wishes to adopt, and just making the switch. We would then effectively become a part of a larger currency market, governed by the Central Bank of the state from which the currency derives.* Here in Iceland it wouldn’t even have to be such a big deal because there is a relatively small amount of currency in circulation – the majority of transactions are electronic.

Until now, all ideas have focused on propping up the krona so it can be floated [confession: I'm completely ignorant of what that means], which evidently would entail having a major foreign currency reserve, hence the need for a USD 6 billion loan from the IMF. However, the abovementioned article points out that there could very easily be a rush to change kronas into other currencies – as it no longer enjoys any trust – without a change back, which would mean that the Icelandic nation would wind up with a completely useless currency AND massive foreign debt, to boot.

Apparently the solution they are proposing has been applied before, in both Montenegro and Panama. In fact, the economists who oversaw those changes have both been interviewed by the Icelandic media in the last few days, and expressed their views that this is completely viable.

Unsurprisingly, this article has received a lot of attention here in Iceland. After all, the situation is completely insufferable here at the moment, what with the endless delays in the IMF’s approval of the rescue package [there are reports that it's being held up by British and Dutch representatives, who refuse to pass the package until the Icesave dispute is settled] and various other loan promises floating around, while nothing seems to happen. And the natives are getting restless. The Fréttablaðið editorial today compared the situation to the film Groundhog Day, where the Bill Murray character wakes up day after day to the same circumstances, as the same day keeps repeating itself. It’s kind of like that here. People have fallen into a numb sort of trance, endlessly waiting for something to happen, and nothing does. All of which may well erupt into massive rage if nothing is done – soon.

As ever, the government and the Central Bank seem completely ineffective. Apparently Barack Obama has already called together a team of economists in the US to brainstorm ways to deal with the economic crisis over there – why hasn’t our government done something similar? The ideas are out there – it is amazing how many people are coming up with brilliant, creative ideas to deal with various aspects of this mess – such as the two economists who presented the idea above. Why hasn’t the government called the best minds in the country together IN ONE ROOM and brainstormed ways to deal with the crisis, which becomes deeper with each passing day? Why do people have to send their ideas in to the newspapers and get the media buzzing before they’re even listened to? It’s completely incomprehensible.

Two of the main news/talk shows here in Iceland – Kastjós and Silfur Egils – have addressed the abovementioned idea on their programmes in the past couple of days. All economists agree that the solution is viable. The only real dilemma associated with it seems to be political – i.e. if Iceland were to unilaterally adopt the euro without the approval of the EU we might piss them off – and God knows we don’t need more enemies right now. However, we might not even have to pick the euro – hell, we could even adopt the greenback [strange how the hypothetical idea in this post - that I wrote more or less in jest a few months ago - has suddenly become dead real].

Whatever transpires, I have to say that this solution, as outlined, seems the most eminently sensible thing I’ve heard in a long time. We wouldn’t have to take this huge IMF loan, the IMF wouldn’t set their potentially damaging conditions [their rescue packages in the past have been severely criticized by many experts and could have extremely dire consequences] and we’d be rid of the króna which, I truly am sad to say, seems to have run its course.

IT’S TURNED VERY CHILLY
Here in the November darkness we now have 0°C [30F] and very cold winds. Sunrise this morning came at 9.44 and sunset this afternoon at 4.38.

* Meaning we would have no use for our own Central Bank any more. Hallelujah!

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