Wednesday, December 07, 2005

Let's talk about currency union

The Canadian dollar has benefited handsomely from the resource boom. Our petro main course, with a side of rocks, has fed the Canadian economy. But it has also put a strain on the industrial export sectors. Those industries that benefited from a weak currency now find themselves with new challenges to remain competitive. Indeed, some of these industries will have a hard time, as a floating exchange rate bites both ways. It can also be very disruptive to the efficient working of a national economy. The dislocation that occurs during a period where one group of sectors changes the terms of trade for another group of sectors can be difficult to manage, especially when the resource sector can be so cyclical. A short-term currency revaluation does shift labour and infrastructure, but the natural allocation of these factors would be better served with more exchange rate stability.

A fixed exchange rate? Some economists argue such. Nevertheless, my feeling is that a currency union with the United States would serve the ultimate purpose of adjusting the Canadian economy to its prime equilibrium. Given that the natural marketplace for the export markets is continental, the sooner the political will for pushing toward dollarization of the loonie, the sooner the nation builds a solid economic foundation. More political media deliberation on currency union is needed.

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