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CD Howe Amero

CD Howe Amero

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North American Common Currency
North American Common Currency

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Published by: northerndisclosure on Feb 04, 2010
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C.D. Howe InstituteInstitut C.D. Howe
Communiqué 
Embargo: For release
Tuesday 
 , June 22, 1999, at 10:00 a.m.
Canada should pursue North American currency union,economists say 
Canada’s floating exchange rate is not serving the country’s economic interests well, and thesolution could be to work toward establishing a North American currency union, say two of Canada’smostdistinguishedeconomistsinastudyreleasedtodaybytheC.D.HoweInstitute.Thestudy,
FromFixingtoMonetaryUnion:OptionsforNorthAmericanCurrencyIntegration
,was written by Thomas J. Courchene of Queen’s University and Richard G. Harris of SimonFraser University.The authors argue that Canada’s experience with a floating exchange rate for the dollarhasbeendisappointing.Floatingratesmakerealexchangeratesmorevolatile,donotappeartooffer effective buffers against external shocks, and can result in prolonged currency misalign-ments, as the current period of pronounced weakness relative to the US dollar demonstrates.SuchweaknessandvolatilitymaytendtodiscourageproductivityimprovementsinCanadianfirmsthatexportorcompetewithimports;biasinvestmenttowardUSlocationsandthusawayfrom Canadian ones; and discourage the development of human-capital-intensive industriesin Canada.CourcheneandHarrisarguethat,astheCanadianeconomybecomesmoreopentotradeand investment flows and as those flows become more focused on the United States, the cost- benefit calculation is growing in favor of greater exchange rate fixity with the US dollar. Suchan arrangement, the authors say, would encourage wage and price flexibility in Canada asfirms and workers became more conscious of their competitive positions in North America;stabilize prices for Canadian financial and real assets; and reduce currency conversion andother transaction costs on crossborder trade and investment.Courchene and Harris explain that the options for greater exchange rate fixity run thegamutfromexchangeratetargets,throughadjustablepegs,afixedexchangeratefullybacked byboththecentralbankandfederalandprovincialfiscalpolicies,acurrencyboard,“dollariza-tion” — whether “market dollarization” (the move by private sector agents to adopt the USdollar for a range of purposes) or “policy dollarization” (an official decision by the policyauthoritiestoproclaimtheUSdollaraslegaltender)—allthewaytoaformalNorthAmericanMonetaryUnion(NAMU).CourcheneandHarrisarguethat,ofthesingle-currencyoptions,acurrency union would be far preferable to dollarization.
 
Responding to fears that moving to a fixed exchange rate monetary regime or currencyunion would involve a loss of sovereignty for Canada, Courchene and Harris say that such aloss would be more apparent than real. They point out thatit was during the fixed rate periodof the 1960s that Canada developed its comprehensive social policy infrastructure.Asafinalargument,CourcheneandHarrisnotethat,inanycase,eventselsewhereintheAmericasareforcingtheissue.Thereisalreadyatrendtowarddollarizationbothinfreetradepartner Mexico and in Argentina, which may serve to constrain the potential for a NorthAmerican currency union. Canada needs to be part of any public debate on the evolution of North American currency arrangements, the authors argue, to ensure that the NAMU optionremains on the table.
* * * * *
TheC.D.HoweInstituteisCanada’sleadingindependent,nonpartisan,nonprofiteconomicpolicyresearchinstitution. Its individual and corporate members are drawn from business, labor, agriculture, universities,and the professions.
— 30 —
For further information, contact: Thomas J. Courchene (613) 533-6555;Richard G. Harris (604) 291-3795;Shannon Spencer (media relations), C.D. Howe Institutephone: (416) 865-1904; fax: (416) 865-1866;e-mail: cdhowe@cdhowe.org; Internet: www.cdhowe.org
From Fixing to Monetary Union: Options for North American Currency Integration
, C.D. Howe InstituteCommentary 127, by Thomas J. Courchene and Richard G. Harris (C.D. Howe Institute, Toronto, June 1999).28 pp.; $9.00 (prepaid, plus postage & handling and GST — please contact the Institute for details).ISBN 0-88806-459-6.Copies are available from: Renouf Publishing Company Limited, 5369 Canotek Road, Ottawa, Ontario K1J9J3 (stores: 71½ Sparks Street, Ottawa, Ontario; 12 Adelaide Street West, Toronto, Ontario); or directly fromtheC.D.HoweInstitute,125AdelaideStreetEast,Toronto,OntarioM5C1L7.Thefulltextofthispublicationwill also be available on the Internet.
C.D. Howe Institute / Institut C.D Howe Communiqué / 2
 
C.D. Howe InstituteInstitut C.D. Howe
Communiqué 
Embargo : à diffuser le
mardi 
22 juin 1999 à 10 h
Le Canada devrait rechercheune union monétaire en Amérique du Nord,affirment des économiste
LetauxdechangeflottantduCanadan’aidepaslesintséconomiquesdupaysetlasolutionpourrait consister à établir une union monétaire nord-américaine. C’est du moins ce qu’affir-ment deux des économistes les plus éminents au pays, dans le cadre d’une étude publiée au- jourd’hui par l’Institut C.D. Howe.Intitulée
From Fixing to Monetary Union: Options for North American Currency Integration(Du taux de change fixe à l’union monétaire : choix de l’intégration monétaire en Amérique du Nord),
l’étude est rédigée par Thomas J. Courchene de l’Université Queen’s et Richard G. Harris del’Université Simon Fraser.Les auteurs soutiennent que l’expérience qu’a faite le Canada du taux de change flottantpour le dollar s’est avérée décevante. Un taux flottant entraîne une instabilité des taux dechangeels,nesemblepasoffriruntamponefficacecontreleschocsexternesetpeutsesolderpar un mauvais alignement prolongé des devises, ainsi qu’en témoigne la période actuelle defaiblesse prononcée de la devise canadienne par rapport au dollar américain. Une faiblesse etuneinstabilitellesauraienttendanceàdissuaderlesentreprisescanadiennesquisontexpor-tatrices ou qui font concurrence aux importations d’effectuer des améliorations de la produc-tivité, elles pourraient encourager les investissements vers les emplacements américains audétriment des emplacements canadiens et elles pourraient décourager l’essor des industriesaux besoins élevés en capital humain au pays.SelonMM.CourcheneetHarris,aufuretàmesurequel’économiecanadiennes’ouvreda-vantageaucommerceetauxfluxd’investissementetquecesfluxseconcentrentdavantagesurles États-Unis, le calcul coûts-avantages croît en faveur d’une fixité accrue du taux de changepar rapport au dollar américain. De telles dispositions, ajoutent les auteurs, stimuleraient lasouplesse en matière de prix et de salaires au Canada, car les entreprises et les travailleurs se-raient plus conscients de leur position concurrentielle en Amérique du Nord; elles permet-traient également une stabilisation des prix pour les biens financiers et immobiliers, et ellesréduiraient la conversion monétaire et les autres frais de transaction du commerce et de l’in-vestissement transfrontaliers.MM. Courchene et Harris expliquent que les choix d’une fixité accrue du taux de changesontvastes,qu’ils’agissed’objectifsdetauxdechange,d’unsystèmedepariajustable,d’un

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