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Common Denominator.

Would Canada benefit from a common North American currency?

A common North American currency will bring about greater price stability, significantly tower long-term interest rates, enhanced trade, greater productivity, and the creation of more wealth in Canada for personal and social ends, says a new study released by The Fraser Institute, "The Case for Amero: The Economics and Politics of a North American Monetary Union."

The study calls for a North American Monetary Union that includes Canada, the United States and Mexico. Under the proposed plan, bank notes and coins of the currency, dubbed the "amero," will have amero symbols on one side and national emblems on the other to preserve important symbols of national identity.

The study's author Herbert Grubel, an economist and senior fellow at The Fraser Institute in Vancouver, argues that flexible exchange rates have not brought Canada the benefits promised by its advocates and have instead contributed to poor economic performance through a reduction in labour market flexibility and delayed adjustment to the long-term decline in world prices for natural resources. In addition, unemployment has remained high and economic growth has been slow. Labour market flexibility, essential for dealing with economic shocks, has been lowered by the existence of flexible exchange rates.

"This system has contributed to Canada's high and excessive reliance on the production of natural resources. A monetary union will ensure that we move to the high-tech and other profitable and expanding industries at a more optimal pace, and Canadians' productivity and living standards will increase correspondingly," Grubel states.

Canada's cultural sovereignty and political independence will not be affected by monetary union. Just as in the case of the Free Trade Agreements there is nothing in any treaty for monetary union that interferes with Canada's ability to pursue taxation, spending, social, regulatory, or foreign policies different from those of the United States or other members of the monetary union.

Trade among the members of the monetary union will be stimulated by the elimination of the costs of currency trading and risk. There will be greater price stability and, importantly, interest rates in Canada will fall by about 1%. A common currency will also promote strong geographical ties across borders -- states of the US midwest and the Canadian prairies, for example, share many of the same economic concerns.

The United States also stands to benefit from a common currency. Monetary union will reduce the threat to the power of the US dollar resulting from the greater use of the euro in place of the dollar in the rest of the world. Further, the United States will gain from having more stable and prosperous countries as neighbours. Clear benefits have been gained through membership in multi-nation organizations such as the World Trade Organization (WTO), and NAITA, and a common currency fits the same mould.

"Increased trade, more stable economies in the rest of the world, and continuous forums for the exchange of views have increased the prosperity of Americans. By extension, the proposed monetary agreement will benefit the United States since it is expected to improve the size and stability of the economies of Canada and Mexico; American trade and investment will grow correspondingly," concludes Grubel.

Central bank

A tripartite central bank, the North American Central Bank, will be established to oversee the integrity of the amero. Members of the union will have representatives on the bank's boards in numbers reflecting their relative size in terms of some weighted average of population and national income, with the weights to be determined through negotiations. Every country will receive the profits from the issuance of ameros used domestically, and their own share of the profits that governments gain from printing money.

The conversion of existing currencies into the amero will take place at rates that leave each country's real income, wealth and international competitiveness unchanged at the time of conversion.
COPYRIGHT 1999 Society of Management Accountants of Canada
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1999 Gale, Cengage Learning. All rights reserved.

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Publication:CMA Management
Article Type:Brief Article
Geographic Code:100NA
Date:Nov 1, 1999
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