alt Hacker NewsIf the króna fluctuates so much, wouldn't that also indicate that demand for the króna just fluctuates a lot? Presumably, in absence of major conflicts between Iceland and its trading partners, as a result of economic imbalances. Those won't go away if Iceland were to join the eurozone, either as a EU member or via the Kosovo/Montenegro route. It might deprive the Icelandic central bank of a valuable tool to stabilize their economy, by weakening or strengthening their currency as economic circumstances demand. This was a big problem for the southern EU economies back in credit crisis times.
Now there are of course many other considerations that might offset this downside to joining the eurozone. I would personally welcome our Icelandic friends joining the EU (if they chose to), but it's good for them to have a public debate about both the up- and downsides first.
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> Presumably, in absence of major conflicts between Iceland and its trading partners, as a result of economic imbalances. Those won't go away if Iceland were to join the eurozone, either as a EU member or via the Kosovo/Montenegro route.
Part of it would. There is a cost to maintaining your own currency that can drag down the economy.
Counterfeiting is an obvious one, getting software and markets to support is another one, but what parent above you is likely arguing against currency speculators/manipulators.
You need to defend it to keep it relatively stable so it stays as a store of value or your companies will just use dollars or euro anyway. If your currency is so small a firm in New York can force your currency to change by 50% in a night, regardless of the fundamentals of the businesses who use the króna, you have a problem. Using the Euro also means businesses do not have to pay conversion costs or deal with additional accounting issues for tracking the fluctuations in the currency.
Iceland had a debt crisis from 2008-2011. Part of the issue is the currency is small relative to global markets, so investments/speculation/shocks from elsewhere have an outsize impact.
https://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_fi...
A small boat will jump up and down in relatively small waves, while it takes a huge storm to destabilize Oasis of the Seas.
And the króna is a very small boat.
> If the króna fluctuates so much, wouldn't that also indicate that demand for the króna just fluctuates a lot?
Yes, relative to the size of Iceland's economy. Average daily ISK turnover on the interbank market is only 4 or 5 million EUR [1]. A single commercial transaction, like the purchase of a new trawler from abroad, can easily be worth 2-3x that amount and cause the exchange rate to spike due to the lack of liquidity.
[1] https://cb.is/news-and-publications/article/interbank-market...