The End of Money by David Wolman

Author:David Wolman
Language: ru
Format: mobi, epub
Publisher: Da Capo Press
Published: 2012-01-09T20:00:00+00:00

IN OCTOBER OF 2008, the króna suffered a near fatal crisis of faith. Because those three private banks’ losses dwarfed the national economy, the central bank couldn’t come to their rescue as lender of last resort. Despite the alchemy of money creation, central banks are still limited to creating money in their national currency. Issuing more króna to try and absorb the banks’ gargantuan debt wouldn’t have worked because those króna couldn’t buy anything. Iceland was forced to approach the International Monetary Fund hat in hand and accept a last-minute loan from Russia to stave off bankruptcy.

Before the crash, the króna was strong—a source of national pride, and only getting stronger. It was so strong that Icelanders were buying or taking loans in other currencies—often euros, Swiss francs, or Japanese yen—because the interest rates were better. For those with trading savvy, there was money to be made bouncing between currencies or in investment deals involving a series of conversions.

But what Icelanders failed to notice was that no one was investing in their currency. This point was driven home for me after my year without cash. I still had about $20 worth of króna burning a hole in my wallet. When I asked at a few currency exchanges on the streets of London or at airports far from Iceland whether they buy Icelandic króna, the tellers looked at me as if I’d asked them to exchange red feathers for U.S. dollars.

When the bottom fell out of the króna, loans denominated in foreign currencies more than doubled, because twice as much of the domestic currency was suddenly needed to pay back those loans in euros or yen. The banks had built not just a house of cards, but a house of króna. As an Icelandic friend put it: “We were stuck with a currency that is like a sack of rotten potatoes. No one wants it and it’s worth nothing.” It’s important to note that the króna has since recovered much of that lost value. Nevertheless, many experts insist that Iceland and countries like it are no less vulnerable to this kind of currency crisis today than they were in 2007.

During my week in Reykjavik, newspapers reported that vandals were tossing red paint on the homes and cars of Viking Raiders who hadn’t yet fled to England or the Continent. With their wages still paid in króna, Icelanders were losing their homes, cars, and small businesses, unable to make their now-ballooned loan payments. At the national hospital, hours and wages had been reduced, while administrators cut costs by slowing admissions, blood testing, drug sourcing, and diagnostics. Then again, at least Icelanders will now be eating a little healthier. In 2009, McDonald’s decided to close its three restaurants in Iceland. No one was going to pay 780 króna—more than $6.00—for a Big Mac.9

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