Competing monetary regimes are facing the same pressures global industries must. The cost of supporting a monetary regime weighs against competitive efficiency in capital and goods markets. Indeed, the dominant position of the U.S. dollar is enough to have tradition bound exchequer look across the Atlantic as a viable alternative to a marriage with the rest of the EU. Ted Hall of Mayacamas Associates makes some compelling arguments in his WSJ piece (April 11, 2006) for the dollarization of sterling, but his points remind us that Canada is even more positioned to adapt to dollarization. He states his case:
There is much at stake in the U.K.'s choice. Adoption of the dollar would eliminate exchange rate risk, improving risk-adjusted returns for all asset classes. More venture capital would stay in the U.K. (and flow to it from the U.S.), stemming brain drain and fostering a more innovation friendly environment in the U.K. The cost disadvantage and illiquidity premium associated with participating in a $40-trillion pool (euro zone plus the U.K.) will be significant compared to participating in a 40% larger $56 trillion pool (U.S. plus the U.K)
Canada would benefit in the same way should it negotiate a currency union - likely dollarization. The impact on our economy would be significant, in all the ways described above. Perhaps the arousal of a dollarization debate in the U.K. will bring our monetary regime some policy focus for Canadian politicians, business leaders, and, most importantly, ordinary Canadians. Certainly, U.K. dollarization would make the issue fait accompli in the Great White North. The loonie is dead with sterling dollarization.
Just as the U.K. must face this challenge to its monetary traditions, our current Canadian monetary regime demands a debate about its future. The sooner the better.
1 comment:
Hey, C2C, I appreciate what you have done here, and I am very glad that there is such a great resource here for regional integration in North America. I hope you continue your web log, as I'm interested in further developments.
I happen to believe that a tighter relationship with our neighbours, if not total integration into some newly devised nation-state, would solve many problems. It would create some, yes, but in the long-run it would help immensely. Population could diffuse from Mexico, while we would have the ability to go into Mexico and fix certain problems within their government, and enforce laws to hold order and increase investment in the country. It would help Mexico's economy greatly, perhaps dragging America and Canada down a bit, but nevertheless we are looking at the long run. Eventually the situation will stabilize, and we will emerge as a union of countries that can continue dominating the globe even into this new era of powerful players (China, India, EU, and new industrial countries).
We need to work together to progress into the future. Our differences must be forgotten, if not removed, for us to keep our position in the world affairs.
However pro-integration I am, I will admit that rumours of the Bush Administration promoting a North American Union are somewhat suspicious to me. Is there any really feasible evidence of this motives? Are the NAFTA superhighways they are talking about real? So many questions. I wonder if in our lifetime we'll see some kind of greater union than NAFTA alone.
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