NCPA - National Center for Policy Analysis

Will Canada And U.S. Adopt A Common Dollar?

August 6, 1999

Canadians are a proud people who abhor the thought that they could ever be vassals to the U.S. But in a recent poll, a surprising 37 percent of them believe that abolishing their national currency could help their country and 77 percent predict a common currency with the U.S. in 20 years. Half see it happening within a decade.

Although market watchers predicted earlier this year that the Canadian dollar would soon be worth 75 U.S. cents, it closed at the end of July at 66 cents. While the nation's economy is strong, Prime Minister Jean Chretien recently nixed the idea of cutting taxes. Higher costs induced by high taxes reduce the value of the Canadian dollar because they lower returns to Canadian investors, economists point out.

  • Canada taxes capital gains twice as heavily as the U.S. -- and top marginal income tax rates kick in at incomes of only $65,000 Canadian.
  • Those rates range from 45.6 percent to 54 percent.
  • Government expenditures there now represent 42.6 percent of gross domestic product -- compared to 31.6 percent in the U.S.
  • Adopting the U.S. dollar might make sense in light of the fact that Canada's trade with the U.S. has almost tripled since the North American Free Trade Agreement was signed and it now ships 85 percent of its exports to the U.S.

Canada's gold supply -- which just 18 years ago made up 80 percent of its foreign reserves -- now comprises only 5 percent.

Experts think that monetary union with the U.S. would force the government to become competitive with the U.S. on tax, spending and regulatory policies.

But a monetary union would require the U.S. Federal Reserve to add a Canadian seat to its board of governors and Chairman Alan Greenspan has said that the U.S. will never share control of its central bank.

Source: Peter Holle (Frontier Center for Public Policy; Winnepeg, Manitoba), "Canadians Wonder Whether the Loonie Is for the Birds," Wall Street Journal, August 6, 1999.


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