North American Currency Union for Canada
A country's distinct currency and its value give rise to that nation's sovereignty and autonomy. However, the recent debate about whether Canada should join the United States of America to form a North American Currency Union has been brought about for discussion and consideration. A currency union is established when two or more countries peg their respective exchange rates to one and another and also coordinate to regulate agreed economic policies. As successes are witnessed from the establishment of the European Union, a currency union among twelve member countries of Western Europe, the possibility of the formation of a North American Monetary Union (NAMU) presents itself. This paper will show that a North American Monetary Union is necessary and beneficial for Canada because it would provide the country with stable cost structures, international values for Canadian assets, attraction and retention of more skilled labour, and strengthening of Canada's global political power.
Currency regimes are under review everywhere; whether it is fixed, flexible or pegged exchange rates, countries explore the best option that is the most appropriate for their economy. The proposal for Canada to enter into the NAMU agreement is first substantiated from the proposition that our current system with flexible exchange rates has not served Canada well. Volatile currency rates cause challenges for free trade between Canada and its trading partners, particularly for our primary trading country, the U.S. These challenges arise from the fact that the fluctuations in currency rates cause firms in the trading countries to have unpredictable cost structuresi. Multinational corporations that operate in both the U.S. and Canada must constantly adjust prices to keep up with the volatility of each nation's currency and thus makes it difficult to function identically across its international locations. Emphasizing the need for exchange rate stability in North America is much more worthwhile than currency unions in other parts of the world because the Canadian-U.S. situation is much different than many other small, open economies. Canada's predominate trade with the U.S. has led to the formation of the North American Free Trade Agreement (NAFTA) a few years ago. The establishment of a potential monetary union between the member countries of NAFTA will further promote and ease the integration between Canada, the U.S. and Mexico. However, if the current regime continues, two problems will likely occur: the incompatibility of free trade between Canada and the U.S. and the difficulty for multinational corporations to operate in these two countries. Over the years, the weak value of the Canadian dollar has often been blamed for a slowdown in the growth of the U.S. economy because the Americans argue that Canada is posing an unfair competition by offering goods and services at comparatively lower prices. These complaints about Canadian competition and subsidization were relatively muted since U.S. growth has been substantially strong. However, the inherent tension due to floating exchange rates in the long run will without a doubt pose a threat to the mutual relationship between the two countries and ultimately result in a termination of any initial integration. The primary requirement of successful free trade is a predictable and stable currency rate. The stability allows firms that operate in different countries to calculate their cost structures in respect to the volumes to be traded and the degrees of specialization. These planning and calculations become increasingly crucial in the long term as trade barriers are lowered and competition is intensified. Moreover, the political aspect of any free trade agreement consists of "fairness" amongst participating member countries. Accordingly, unfairness would ultimately constitute exchange rate volatility that puts one party of the free trade agreement at a disadvantage.
A country's distinct currency and its value give rise to that nation's sovereignty and autonomy. However, the recent debate about whether Canada should join the United States of America to form a North American Currency Union has been brought about for discussion and consideration. A currency union is established when two or more countries peg their respective exchange rates to one and another and also coordinate to regulate agreed economic policies. As successes are witnessed from the establishment of the European Union, a currency union among twelve member countries of Western Europe, the possibility of the formation of a North American Monetary Union (NAMU) presents itself. This paper will show that a North American Monetary Union is necessary and beneficial for Canada because it would provide the country with stable cost structures, international values for Canadian assets, attraction and retention of more skilled labour, and strengthening of Canada's global political power.
Currency regimes are under review everywhere; whether it is fixed, flexible or pegged exchange rates, countries explore the best option that is the most appropriate for their economy. The proposal for Canada to enter into the NAMU agreement is first substantiated from the proposition that our current system with flexible exchange rates has not served Canada well. Volatile currency rates cause challenges for free trade between Canada and its trading partners, particularly for our primary trading country, the U.S. These challenges arise from the fact that the fluctuations in currency rates cause firms in the trading countries to have unpredictable cost structuresi. Multinational corporations that operate in both the U.S. and Canada must constantly adjust prices to keep up with the volatility of each nation's currency and thus makes it difficult to function identically across its international locations. Emphasizing the need for exchange rate stability in North America is much more worthwhile than currency unions in other parts of the world because the Canadian-U.S. situation is much different than many other small, open economies. Canada's predominate trade with the U.S. has led to the formation of the North American Free Trade Agreement (NAFTA) a few years ago. The establishment of a potential monetary union between the member countries of NAFTA will further promote and ease the integration between Canada, the U.S. and Mexico. However, if the current regime continues, two problems will likely occur: the incompatibility of free trade between Canada and the U.S. and the difficulty for multinational corporations to operate in these two countries. Over the years, the weak value of the Canadian dollar has often been blamed for a slowdown in the growth of the U.S. economy because the Americans argue that Canada is posing an unfair competition by offering goods and services at comparatively lower prices. These complaints about Canadian competition and subsidization were relatively muted since U.S. growth has been substantially strong. However, the inherent tension due to floating exchange rates in the long run will without a doubt pose a threat to the mutual relationship between the two countries and ultimately result in a termination of any initial integration. The primary requirement of successful free trade is a predictable and stable currency rate. The stability allows firms that operate in different countries to calculate their cost structures in respect to the volumes to be traded and the degrees of specialization. These planning and calculations become increasingly crucial in the long term as trade barriers are lowered and competition is intensified. Moreover, the political aspect of any free trade agreement consists of "fairness" amongst participating member countries. Accordingly, unfairness would ultimately constitute exchange rate volatility that puts one party of the free trade agreement at a disadvantage.