Iceland Discussing Adopting the Canadian Dollar?

 

This isn’t exactly a new story, or even one with a lot of substance at face value, but the idea of Iceland adopting the Canadian dollar as their currency has been openly discussed

http://online.wsj.com/article/BT-CO-20120302-710764.html

The significant thing here is that Iceland geographically sits (approximately) halfway between the United States and mainland Europe – home of the dollar and Euro – the world’s two largest reserve currencies.   Iceland isn’t a member of the EU, but still has  economic ties with the EU as a member of the European Economic Area.   It would seem as if Euroization or even dollarization of their economy would be the most likely choice.   Hell, even the British pound (the world’s 3rd largest reserve currency – but far behind the Euro) or even giving a nod to Iceland’s former colonial masters Denmark and adopting the Danish Krone would make sense, but the Canadian dollar?

Right now the Eurozone is certainly in trouble and many people around the world are beginning to have doubts about the long-term prospects of the US Dollar.   Iceland has been burnt before (as I briefly mention in this post) and would be prone to seeking stability.

Like every other country in the world, Canada isn’t perfect, although sometimes it’s romanticized as such by doe-eyed Americans and even some of her own citizens.   Canada does however have a pretty decent economy based on commodities.   There’s lots of oil, natural gas, metals, minerals, wheat, cattle, timber and fish up there.   Canada has a lot of intrinsic worth due to the abundance of resources and it’s likely that their currency will hold value as the dollar and euro decline.    Personally, I own stock in Calgary-based Encana Energy (natural gas – ECA on the exchange) and Iamgold (IAG) as my plays into Canada’s resources.

Although this story at this point isn’t a true issue, it does raise some questions about the future of the dollar (and the euro) and whether or not smaller nations will seek out other currencies or precious metals as reserve currencies.   This would affect us in the United States by decreasing demand for our currency and possibly seeing a flood of dollars return home and thus cause inflation.    At this point it’s not out of the realm of possibility to expect to see the Chinese yuan begin to dominate Asia and perhaps part of the Middle East and Africa.   I wouldn’t be surprised to see the Brazilian Real have a little more pull in Latin America as their economy takes off.   We should start making preparations to deal with the decline in value of the dollar that would happen should competition among currencies increase.