Common currency idea now a laugher
Americans, not us, may soon plead for economic union
It
seems kind of quaint now,
those earnest predictions of Armageddon a few years ago when our dollar sank below a lowly US65¢ .
Canada was swishing right down the toilet, we were warned. Our quality of life was deteriorating next to the United States. And the sickly dollar meant American firms could buy up Canadian companies — including our people and know-how — on the cheap. Imminent was the “hollowing out” of Corporate Canada if we didn’t defend ourselves.
And so the yelping from business leaders and Canadian economists for so-called dollarization. “ The debate should now turn to dollarization — either the adoption of the U. S. dollar or a common currency,” wrote economist Sherry Cooper in 2001, after the dollar hit a record low of US62.30 ¢ .
Inspired by the debut of the Euro in 1999, the idea was for Canada to adopt the U.S. currency or strike a monetary union with Uncle Sam and create a new North American dollar. Economist Herbert Grubel’s catchy suggestion: the “ Amero.”
Whatever form or name chosen, our struggling loonie would be replaced by or pegged to the then-powerful U.S. dollar. And if he wasn’t busy enough at home condemning irrational exuberance, Federal Reserve chairman Alan Greenspan would be taking a starring role in setting Canada’s monetary policy, though we’re not sure he’s ever visited.
Adopting a common currency would improve Canadian productivity, it was argued, as it would yank away the crutch of a weak dollar fuelling exports. It also would counter the costs and risks of fluctuating exchange rates and prices, while improving trade and lowering long- term interest rates.
“Like it or not, the U.S. dollar is becoming de facto the currency of commerce for a substantial fraction of the economy,” noted Richard Harris, an economics professor at Simon Fraser University, in 2000.
Funnily enough, though, we aren’t hearing much from these same economists today as the Canadian dollar, hopped up on the energy boom, storms past US85¢. If the argument made sense at US65¢, is it not an even better idea now?
“ The silence confirms the proponents have trouble getting the thinking caps straight,” offers Don Drummond, chief economist at Toronto-Dominion Bank.
If the depressed loonie was to blame for Canadians’ declining standard of living, why, Drummond and many others wondered, would you want to make this gap permanent by latching on to the greenback?
Still, Grubel hasn’t given up the dream. To him, a very low or very high exchange rate could reignite debate of the issue. The dollarization furor died off, he figures, because the exchange rate is not high enough to create “real hardships” for industry. At the same time, low interest rates have fuelled a housing and construction boom, soaking up unemployed workers.