The three huge public policy issues for Canada over the next decade are unity, productivity, and governance. All of these questions will be importantly influenced by the current debate over a common currency with the United States. This major work by Herb Grubel is the culmination of a decade of research on the topic. It sets out the best integrated approach to seizing the advantages and avoiding the dangers implicit in this current of monetary history, spurred by the success of the euro.
Unlike some other commentators, Mr. Grubel does not see a common currency as inevitable but, on balance, very desirable. However, the greatest advantage can only be gained by carefully examining and understanding our national interests and working with the United States and Mexico (and perhaps others in the longer run) to establish the institutions that would give Canada a continuing role in the management and profits of a North American currency.
In his advocacy of the "amero" for our continent, Mr. Grubel goes beyond the work of other commentators. The justification is found not only in negative terms--a way of ending the pattern of significant long-term decline that has been the fate of the Canadian dollar over the past generation with the subsequent international erosion of Canadian wealth--but for highly positive reasons.
These include the benefits of greater price stability, significantly lower long-term interest rates, enhanced trade, greater productivity, and the creation of more wealth in Canada for personal and social ends. He gives chapter and verse on the magnitudes of expected benefits and the mechanisms by which they will be realized.
Canadian critics of a common currency take three main positions. The first is that the present system has worked well, so why tamper with it? The second is that a unique Canadian currency is a necessary bulwark of our sovereignty and independence. The third is a claim that the United States would never cooperate in any event.
On the first issue, the system has not worked well. Mr. Grubel explains how the floating exchange rates of the past generation have acted as a kind of non-tariff protection from world market forces, leading to the relatively poor productivity performance and stunted technological sector we see today. Indeed this system has "contributed to Canada's continued high and excessive reliance on the production of natural resources." A monetary union will ensure that we move to "high-tech and other profitable and expanding industries at a more optimal pace."
Simply put, attempts at long-term insulation from economic reality are counterproductive in the end. Of course Canada has many such devices scattered throughout our economy--marketing boards, industrial subsidies, high deficits and government spending--but flexible exchange rates have allowed us to continue such mistakes by the simple device of lowering our wages in the world year after year. This is not an intelligent long-term strategy.
Mr. Grubel discusses Robert Mundell's concept of "Optimum Currency Areas." This discussion arises from the seminal question (translated into Canadian terms): "If a different dollar is good for Canada, why not for British Columbia as well?" The debate ranges over site-specific short-term requirements versus long-term portfolio diversification. He concludes that while, at one extreme, a single currency for the world might not be a good thing (because of the advantages of competing systems), regional currencies, as for North America, meet the optimality test.
continued:
http://oldfraser.lexi.net/publications/critical_issues/1999/amero/section_01.html
