A COMMON CURRENCY FOR NORTH AMERICA. by Thomas J. Courchene Jarislowsky-Deutsch Professor School of Policy Studies, Queen’s and Senior Scholar Institute for Research on Public Policy Montreal. Common Currency: Introduction (1). Significance of the Euro
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A COMMON CURRENCY FORNORTH AMERICA
Thomas J. Courchene
School of Policy Studies, Queen’s
Institute for Research on Public Policy
Common Currency: Introduction (1)
Significance of the Euro
The introduction of the Euro ushers in an exciting new era for the Europeans, and we should all wish them well. But the Euro is not a blueprint for a North American monetary union. The political objectives that motivated monetary union in Europe do not have a parallel in North America.
Common Currency: Introduction (2)
Re: Currency Consolidation:
When tomorrow’s historians look back at the recent financial crises and subsequent efforts to reform global finance, they will reach two conclusions. First, the grand rhetoric of creating a new global architecture yielded few results. Second, we failed to foresee the most profound consequence of the turmoil: regional currency unions. By 2030 the world will have two major currency zones – one European and the other American. The Euro will be used from Brest to Bucharest, and the dollar from Alaska to Argentina – perhaps even in Asia. These currencies will form the bedrock of next century’s financial stability.
(Zanny Minton Beddoes, “From EMU to AMU: The Case for Regional Currencies”, Foreign Affairs (July/August, 1999).
Common Currency: Introduction (3)
Outline of Presentation
But: will show that it is too costly to do this.
But: issue is not the Bank, per se, but its policy.
First, the Case for a Floating Rate
Falling Living Standards
This has led to a dramatic fall in Canadian living standards relative to those in the US.
The Americans now spend more public money on health care than we do [evaluated at PPP at 78 cents].
Volatility or Misalignment
Buffering and Productivity (A)
Failings of Canada’s Float (6)
Buffering and Productivity: A Theoretical Model
Failings of Canada’s Float (7)
The Case for Exchange Rate Fixity (1)
The Case for the Exchange Rate Fixity (3)
Adjustment under Fixed Rates
Therefore, not true that we lack effective adjustment under fixed rates. Ontario would adjust more or less in the same way as Michigan.
There is still a national problem because resources are a larger part of Canadian GNP than US GNP and there is also a Canadian interregional problem.
But we have policies to handle this
Fixed Rates as a Consumer Buffer
Fixed exchange rates are unsustainable, and a common currency is unattainable, therefore the real choice is between flexible rates and dollarization. Since dollarization is unacceptable, flexible rates rule!
Currency Boards (CB)
Nature of NAMU
Why Not Simply Use US dollars?
[This is one way of conceiving how we might replicate the Euro in the Western Hemisphere].
Britain vs Canada
Thomas J. Courchene and Richard G. Harris (1999) From Fixing To Monetary Union: Options for North American Currency Integration, Commentary 127 (Toronto: C.D. Howe Institute).