NCPA - National Center for Policy Analysis

A Common Currency For North America?

October 7, 1999

Europe has the euro. Could North America also adopt a common currency -- say, the amero? That is the proposal in new study from Canada's Fraser Institute. While the study focuses on the effects of a monetary union on Canada, it does suggest that all three potential monetary union members -- Canada, the United States and Mexico -- would reap benefits.

Among the benefits, according to the study's author, economist Herbert Grubel:

  • Trade among the members of the monetary union would be stimulated by the elimination of the costs of currency trading and risk.
  • There would be greater price stability, and interest rates in Canada will fall by about one percent.
  • The U.S. would also benefit because a common currency would reduce the threat to the power of the U.S. dollar from the greater use of the euro in the rest of the world.
  • Further, it would gain from having more stable and prosperous countries as neighbors.

Grubel argues that flexible exchange rates between the Canadian dollar and U.S. dollar have not brought Canada the benefits promised. Instead, it has contributed to poor economic performance by reducing labor market flexibility and delaying adjustment to the long-term decline in world natural resources prices.

"A monetary union will ensure that we move to the high-tech and other profitable and expanding industries at a more optimal pace," says Grubel, "and Canadians' productivity and living standards will increase correspondingly."

Source: Herbert Grubel, "The Case for Amero: The Economics and Politics of a North American Monetary Union," Critical Issues Bulletin, September 1999, Fraser Institute, 4th Floor, 1770 Burrard Street, Vancouver, B.C. V6J 3G7, Canada, (604) 688-0221.

 

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