Iceland considers the Loonie

Iceland is considering the adoption of the Canadian Dollar as its country's currency as an alternative to the failed Icelandic króna.

The adoption of the currency would provide Iceland with a stable foundation to rebuild its economy which was hammered by the 2008 global recession. The Canadian currency is seen as a more favourable alternative to Icelanders than the U.S. dollar, the Euro, and the Norwegian krone.

One of the problems with the adoption of the Canadian currency for Iceland could be the fact that the value of the dollar strongly correlates with the price of oil. This would be perfectly fine if Iceland were to be a large exporter of oil, but this is not the case.

As we have seen in Canada, the strong value of the Canadian dollar has had negative effects on exports (to the United States), especially manufactured goods which already face small margins. With much of Iceland's trading partners being in the EU, the Euro could be seen as a more attractive alternative for adoption. There is likely much hesitance though due to the current situation of Greece, Ireland, and other fragile economies. Alternatively, the Icelandic government could adopt the Canadian dollar and try to form greater trading ties with Canada and the rest of North America, broadening their current list of trading partners.

The move will take away the ability of the Icelandic central bank being able to control rates, as that duty will remain with the Bank of Canada, but this may be seen by policy makers as a necessary concession to get the economy back on track.