It used to be that dates when the Central Bank announced its interest rates were earth-shaking news-material in Iceland.
Today when the bank lowered the rates down to 7% from a high of 18% in March of 2009, it barely got a mention.
The rates are at their lowest since 2004. See here at DataMarket.
There is probably a feeling of damned if you do and damned if you don’t. And a sense of having no control.
Other nations with credible currencies have been lowering their rates to encourage investment and growth. And that is something the Central Bank of Iceland must attempt.
But go too low or too quick then precious capital will steer away from Iceland, and what is already there will seek a way out.
It ain’t easy and it ain’t cheap maintaining a micro-currency in a global economy but that is what many Icelanders still want to do after decades of devaluation.
According to Austrian research by Meier-Pesti and Kirchler from 2003, there was a strong correlation between individuals nationalism and their attachment to an own national currency.
Eric Helleiner has claimed that national currencies foster national identities by
(a) providing a vehicle for nationalist imagery that constructs a sense of collective tradition and memory (like 500 kronas with Jon Sigurdsson on the front and the coins depicting the fishing tradition)
(b) acting as a common medium of social communication that may facilitate the “communicative efficiency” of members of the nation and encourage similar frameworks of thought (prices, definitions, valuations etc. Probably responsible for so many Icelanders thinking that consumer price indexation is all good)
(c) creating collective monetary experiences that can bolster the feeling of membership in a national community of shared fate (like say a collective wiping out of assets and increase in debt)
(d) contributing to a sense of popular sovereignty, at least insofar as the national currency is managed in a way that corresponds with the people’s wishes (tricky but the sovereignty issue plays a definite part in the discussion in Iceland. Why anyone would want to endure life under the krona except for producers like the fisheries who can lower their labour costs and krona debts by devaluation is still puzzling)
(e) strengthening the kind of quasi-religious faith that is associated with nationalism, especially when the currency is managed in a stable manner (now you are just assuming that the krona is being managed instead of it being used to manipulate us)
Finance minister Steingrimur J. Sigfusson is a proclaimed fan of the krona at least. He believes that its flexibility offers Icelanders a nice little shovel to dig themselves out of the krona holes they keep getting into.
Realistically though, one would expect more and more Icelanders to vote with their feet and run away from the krona, just like the fisheries have been doing.
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Lino
1 year ago
unfortunately, all currencies, “strong” included, are just trash: paper, fictional monopoly money whose “value” is a state of mind.
Over are the days when they represented the value in gold or whatever precious collateral stored in some vault: there’s a reason why all currencies are legal tender, that is to force you with the violence of law to “accept” (endure would be more appropriate) what, is to all useful purposes, Monopoly money.
I’m not sure about the meaning of lowering interest rate in a context like Iceland’s: perhaps I’m paranoid but it could mean “start printing money”… playing the inflation card: very desperate and suicidal option