A recent poll conducted for the local newspaper Fréttablaðið reveals that more than half of Icelanders would like to see Iceland adopt a new currency. A professor of economics at the University of Iceland says the findings are not surprising, as support for adopting a new currency always seems to spike after either the krona falls in price or the Central bank raises interest rates. The Central Bank recently raised its interest rate to
The poll found that 42% of respondents would like to see Iceland adopt a new currency irrespective of whether Iceland would join the European Union, while 38% support keeping the krona and 17% are unsure and 3% refuse to answer. If only the answers of those who take a firm position are considered the poll found that 53% of respondents would like Iceland adopt a new currency in place of the króna.
Not a particularly surprising result
Ásgeir Jónsson, economist at the University of Iceland, told Fréttablaðið that the results of the poll were not all that surprising. The Icelandic krona is one of the smallest independent currencies in the world and the Icelandic economy very volatile, with frequent periods of boom followed by busts. As a consequence the krona has been propped up by currency controls for most of its existence. Price levels in Iceland can only be controlled through the exchange rate, he argues, and this is only possible with the help of currency controls.
“The period from 2001 to 2008 when the krona was allowed to float in open currency markets is somewhat unique in the history of Iceland. And it seems to me that very few people wish to repeat that experience.”
Only reasonable option for a new currency is the Euro
The only reasonable way to adopt a new currency, Ásgeir argues, is through a monetary union with the members of the Euro-zone. Such a change would have far-reaching consequences for monetary and economic policy in Iceland. Ásgeir points out that while the government has introduced a plan to wind down the estates of the collapsed banks, without threatening the financial stability of Iceland and the exchange rate of the krona, no plans for what will follow have yet been introduced. “A new plan on how to lift the currency controls has not been introduced, nor have we seen any sort of roadmap showing what the Icelandic currency will be managed in the long run.”
The Icelandic krona had been part of the Nordic currency union in the 19th century, at which time Danish krona were also legal tender in Iceland. In 1918 the Icelandic krona became a de facto independent currency. Since then the value of the krona has been extremely volatile, depreciating dramatically relative to most foreign currencies, since inflation has been historically high in Iceland. The value of the krona was protected by strict currency controls from 1931 until the 1990s, but the exchange rate of the krona was not set by supply and demand in currency markets until 2001.
A recent poll conducted for the local newspaper Fréttablaðið reveals that more than half of Icelanders would like to see Iceland adopt a new currency. A professor of economics at the University of Iceland says the findings are not surprising, as support for adopting a new currency always seems to spike after either the krona falls in price or the Central bank raises interest rates. The Central Bank recently raised its interest rate to
The poll found that 42% of respondents would like to see Iceland adopt a new currency irrespective of whether Iceland would join the European Union, while 38% support keeping the krona and 17% are unsure and 3% refuse to answer. If only the answers of those who take a firm position are considered the poll found that 53% of respondents would like Iceland adopt a new currency in place of the króna.
Not a particularly surprising result
Ásgeir Jónsson, economist at the University of Iceland, told Fréttablaðið that the results of the poll were not all that surprising. The Icelandic krona is one of the smallest independent currencies in the world and the Icelandic economy very volatile, with frequent periods of boom followed by busts. As a consequence the krona has been propped up by currency controls for most of its existence. Price levels in Iceland can only be controlled through the exchange rate, he argues, and this is only possible with the help of currency controls.
“The period from 2001 to 2008 when the krona was allowed to float in open currency markets is somewhat unique in the history of Iceland. And it seems to me that very few people wish to repeat that experience.”
Only reasonable option for a new currency is the Euro
The only reasonable way to adopt a new currency, Ásgeir argues, is through a monetary union with the members of the Euro-zone. Such a change would have far-reaching consequences for monetary and economic policy in Iceland. Ásgeir points out that while the government has introduced a plan to wind down the estates of the collapsed banks, without threatening the financial stability of Iceland and the exchange rate of the krona, no plans for what will follow have yet been introduced. “A new plan on how to lift the currency controls has not been introduced, nor have we seen any sort of roadmap showing what the Icelandic currency will be managed in the long run.”
The Icelandic krona had been part of the Nordic currency union in the 19th century, at which time Danish krona were also legal tender in Iceland. In 1918 the Icelandic krona became a de facto independent currency. Since then the value of the krona has been extremely volatile, depreciating dramatically relative to most foreign currencies, since inflation has been historically high in Iceland. The value of the krona was protected by strict currency controls from 1931 until the 1990s, but the exchange rate of the krona was not set by supply and demand in currency markets until 2001.
