Central Bank of Canada

Is One Buck Better Than Two?; There Are Strong Arguments For Merging The U. S. And Canadian Dollar In A Single Currency. Regrettably, There's One Very Good Reason To Forget The Whole Idea
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Financial Post Business Magazine
Editor's Letter
Terence Corcoran
National Post
593 Words
14 July 2009
National Post
National
8
English
(c) 2009 National Post . All Rights Reserved.
The Canadian dollar's status as a floating currency is almost a national religion. Canada, after all, practically invented the movable dollar, and any talk of joining the U. S. dollar is considered economic heresy. Which is why, whenever the Canadian dollar takes off in one direction or another -- as it has this year, possibly on its way to beyond parity -- the winners and losers are advised to grin and/or bear it. The high dollar is great for consumers, since it drives down the price of U. S.-dollar-based products and commodities such as gasoline. But a rising currency plays havoc with exporters and workers, whose products are now more expensive for buyers in the United States. Already hammered by the slowdown, Canadian businesses are now being pummelled by a soaring currency.

To avoid these disruptive and dangerous currency swings (see chart), wouldn't it be better if the Canadian dollar joined a common currency with the United States? Our economies and cultures are as close as any two countries can get. What do we gain from having two currencies that periodically swing in different directions, due to any number of factors, from rising oil prices to conflicting monetary policies?

Another supporting perspective for a common dollar is that the world is awash in surplus currencies. The Sauder School of Business in British Columbia lists more than 170 of the things, from the U. S. dollar to the euro, from China's renminbi to Iceland's krona and Bhutan's ngultrum. They float or are fixed; they rise and they crash; and, in the view of many economists, wreak havoc on the world economy. How many different stores of value and media of exchange does the planet need? Robert Mundell, the 1999 Nobel economist, argues the world should aim to eliminate most of these haywire products of national pride and state monetary mischief. Many of them could be rolled into what Mundell calls "optimum currency areas," thereby removing one of the sources of risk from the global economic system.

Certainly one of the great unexamined causes of the latest global financial disaster is the world currency system, with its combination of wildly fluctuating and fixed exchange rates. There have been some calls for reform, possibly using the International Monetary Fund as the focal point for a new global currency regime. More ominously, Russia and China have proposed major currency consolidations globally. One of the first to consolidate, surely, would be the Canadian dollar. Or maybe not. Milton Friedman, another Nobel economist, opposed merging the Canadian and U. S. dollars, and for good reason. The U. S. Federal Reserve, he argued, has a poor monetary-policy record. Canada doesn't need to be linked with a U. S. dollar that could, at any time, plunge into crisis. The current Fed, under Ben Bernanke, and the previous Fed, under Alan Greenspan, lend support to Friedman's caution.

And so that's where we are today, with a floating Canadian dollar in a sea of euros, renminbis and ngultrums, in search of a new and better currency system, but no sign of one on the horizon.

Terence Corcoran, Editor

we have a pretty decent banking system, and i'm sure this will horrify the americans, but we also impose some pretty strict regulations on the banks, that being said, they were one of the few banking systems in the world that didn't need bailing out last year