Wednesday, May 23, 2007

North American Currency Union?

In sharp contrast to Europe, where for example the British pound and Swedish krona have fluctuated only little against the euro, North America's two currencies, the U.S. and Canadian dollars have fluctuated dramatically against each other. The two months alone have seen a 8% increase in the value of the Canadian dollar against the U.S. dollar. So now, Bank of Canada governor David Dodge argues in favor of a North American currency union.

He does however say that this presupposes free movement of labor. Actually, monetary unions don't presuppose this in order to work as long as prices are reasonably flexible. The real argument against this plan from a Canadian perspective would be if it would really be wise to allow their monetary policy to be run from a central bank with such a inflationary track record as the Federal Reserve.

And in reality, nationalist or anti-globalist sentiment in both Canada and the U.S. is likely to prevent this from happening anytime soon.


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