fredag, februari 27, 2009
However, the Icelandic Crown can not be made extinct with immediate effect, and of course Iceland is in need of a currency. What currency or currencies to be used could in my opinion be left to the choice of the people of Iceland.
What has to be done?
- If a claim is denominated in a specific currency, the creditor must have a legally protected right to refuse payment in all currencies except the one in which the claim is denominated.
- The capital gains tax must be reduced to zero in order to encourage people to hold their savings in the currency they perceive as the most secure. As long as there is a capital gains tax there can be no freedom of choice in currency.
- Taxes must be payable in a fairly stable foreign currency. That currency could be Norwegian Crowns. As a consequence public budgets must be quoted and paid out in the "taxman's currency". However, the "taxman's currency" ought not be given full legal tender status.
- Deposits denominated in currencies other than the Icelandic Crown ought not to be subject to deposit insurance. The upper limit of the deposit insurance must also be quoted exclusively in Icelandic Crowns since the Icelandic authorities can print Icelandic Crowns in an emergency but not foreign currencies. In that case, only Icelandic banks can go bankrupt, but Iceland can't. The worst possible scenario is hyper-inflation in terms of Icelandic Crowns.
- The Icelandic parliament issues a law according to which the Icelandic Crown loses its legal tender status on January the 1st 2070. From that day onwards all debt denominated in Icelandic Crowns is extinct and according to the same law Iceland will also become unilaterally a free-trading country on January the 1st 2070.
What currency/currencies Icelanders will use on January the 1st 2070 is left to the choice of the people of Iceland. It does not have to be Norwegian Crowns or Euros. It could be just about anything.