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Rex Murphy's introduction to the June 27, 1999 program: "Should Canada and the U.S. share a currency?"
Tuesday Jun 4, 2002 rci
TORONTO: AMERICANS REJECT COMMON CURRENCY NOTION
A public opinion survey indicates that a strong
majority of Americans disagrees
One N.A. Dollar? January - Febuary 1999
On this subject, Tony Deutsch has expressed the following thoughts:
" ... the NA currency question is fairly straight-
forward, and it is the same as in Europe. If we are prepared to give
up exchange rate movements as an adjustment mechanism (and have, say,
more unemployment to take its place) in return for the trade/investment
advantages of a single currency or a really fixed exchange rate, we
should go ahead. Before making that decision, it would be nice to
quantify both the benefits and the costs.The only room for informed
debate is on the magnitude of these.Personally, I have no idea what
they are...."
Tony Deutsch
From Wed 882 night
Tuesday, January 26, 1999
I hope to make it. But here is my 2¢ - First, Thiessen said the idea was a
lousy one and did not encourage a debate on the subject at all. Second,
economically speaking there are only two countries in North America (si señor,
do you really want the Canadian dollar linked with the peso?). So, what we are
really asking is do we want a US dollar right here. Sure, sounds good to me.
Hello Plattsburgh, here I come... - of course, as a typical, improverished
writer, that would mean that most years I would see a negative rate of income.
(convert next to nothing and remove 40%). But wadda-I-know? - Barry Lazar
Jacques Clemént |
What is the possibility of a common North American currency, (perhaps bearing a likeness of Abraham Lincoln shaking hands with John A. Macdonald) ?
Not very likely, for many reasons. If the Euro is successful, it will be because of the equilibrium which exists between member countries sharing similar economies. This not being the case in North America, or even within Canada, a single currency makes no sense. There should be two currencies in Canada, one serving Western Québec westward to the Pacific Ocean, another serving Eastern Québec eastward to the Atlantic. Our single currency only works because of a system of equalization payments wisely instituted by our political ancestors. There are other reasons as well.
- Unlike North America, Europe has seen a political as well as economic union.
- We are net exporters of commodities, whereas the United States is a net importer. The recent 25% decline in commodity prices causing a steep drop in the Canadian dollar would have been extremely difficult if our currency were unable to float thus absorbing the shock. The United States was not as severely affected.
- Our systems of government are totally different.
- Our economic structures are different. We have enjoyed successive trade surpluses, whereas the United States has constant trade deficits.
- The taxation structure is totally different
- Debt level is different, about 75% of GDP in Canada, 50% in U.S.
- Many countries that have attempted to maintain a fixed exchange rate could not maintain it.
- A fear exists that the result of a single currency might lead to the absorption by the United States of Eastern and Western Canada and the separation of Québec.
Despite these arguments, a common currency may very well be inevitable. It is not happening because the citizens of both countries are unwilling to accept it. The arguments used here have been heard for many years in Europe and have been overcome. To keep the matter in context however, we would do well to remember that the North American free trade concept was born in 1911. Using this as a yardstick, it may yet be some time before a common North American currency sees the light of day.
(Editor's Note: Readers of the National Post may have noted that Thursday's paper carried a comment from Vice Premier Landry in favour of a common North American currency and taking issue with Governor Thiessen's stand. One wonders why Mr. Landry chose to give an interview to the Post rather than a Quebec paper….)
Occasionally ..westweb/ will seek clarifications or further discussion of a Wednesday Night topic. Comments such as these below from Professor Tony Deutsch are most welcome, but may be edited for reasons of space.
Monday, February 01, 1999
Professor Tony Deutsch |
- North American Common Currency
Two points made last Wednesday that do not lead us in the right direction:
- It was asserted that Canada would have to meet what amounted to
the Maastricht conditions to enter such an arrangement. Not so.
Canada could join tomorrow, but would have to spend the next year or two or seventy five, maintaining interest rates and inflation rates practically identical with those of the US.
- Someone stated that the loonie should be at par first. This is totally unnecessary.
The single currency policy would have both costs and benefits. These can be estimated, and there can be no meaningful discussion until a number of those studies become available.
There are other problems:
- The Bank of Canada cannot be expected to muster institutional
enthusiasm for being relegated to the significance of the Federal
Reserve Bank of Atlanta.
- Whatever the costs and benefits, losing the power to depreciate
the loonie will be treated as a sovereignty issue by the wrapping-themselves-in-the-flag gang.
- Having the case put forward by Bernard Landry does not help.
The irony of this is (Landry probably does not fully understand it, but
I am sure that Parizeau does) an independent Quebec is very unlikely to stay with a North American currency, or even with the loonie, for very long.
Tony
Thursday, January 28, 1999
Canada, U.S. need commoncurrency: PQ No 'dishonour' in lost sovereignty:
separatist minister Joel-Denis Bellavance
National Post
The Parti Quebecois government is calling on Paul Martin, the federal Finance Minister, to set up a task force to look at a currency union between Canada and the United States.
Bernard Landry, Quebec's Finance Minister and Deputy Premier, says Mr. Martin and Gordon Thiessen, the governor of the Bank of
Canada, reacted "hastily" when they categorically rejected the
establishment of a common currency in North America.(saved)
Saturday 30 January 1999
The buck stops here Mr. Landry berated the federal government this week for
refusing to consider a currency union with the United
States. .. ..five Financial people and 5 answers.
Sunday 31 January 1999
The Liberal myth about managing debt It's a widespread myth that the Liberal government of Jean Chretien has done a good job when it comes to managing
the national debt. And now his finance minister has the gall
to be debating ways to spend the budgetary surplus that
doesn't belong to him. It belongs to Canada's beleaguered,...(saved)
In Governor Gordon G. Thiessen's address to the Canadian Club, he indicated that he does not expect the Euro to have a major impact on the Canadian economy due to the current balance of trade figures. He further stated that introduction of a North American currency to counterbalance the Euro is unlikely. This subject is slated for
further discussion when more expertise is gathered around the table.
Thursday, January 21, 1999 Thiessen rejects common currency
Advent of euro is not a blueprint for
North America, bank governor says Alan Toulin
Financial Post
A Common North American currency?
A greatly condensed version of a message received from Christopher Goodfellow
on the subject of the adoption of a common North American currency.
"Wish I'd been a fly on the wall re: single north American
currency...reading Wednesday night report... [see below]
Of course they'd never go for it because it would mean great benefits
for the great majority of Canadians. The adoption of the US Currency
would finally force a re-alignment of taxation in Canada to remain
competitive and not rely on the time-honoured tradition of devaluing the
dollar as we have become less competitive year after year in the face
of higher and higher taxation and a growing debtload. That is not to say
it won't ever come. Of course it will come when we have finally
exhausted the devaluation path....
The Cdn Dollar may have surprising days of strength but the direction is down and will remain down until our tax structure is changed...no doubt after much more pain.
The smartest thing Canada could do now would be to make a deal with the
U.S. In return for a total open North American market we give them water
rights which they desperately want and they agree to absorb our debt
with a switchover to the "new" common currency. We'll have lower taxes,
better health care and be able to compete freely. We can do it now and
drive the bargain or wait 5-10 years and accept what they offer.
Canada's choices...."
LaurentianWeb - www.laurentian.com
Christopher C. Goodfellow goodfellow@goodfellow.ca
From: Steve Poloz
To: " D.T. Nicholson "
David:
Thanks for keeping me informed. I will make an effort to attend
tomorrow, but I hesitate to commit myself. Thursday is the day I publish
the next International Bank Credit Analyst, and the night before is when
I normally do my final corrections and add any new thoughts. However, if
production goes well Wednesday, I may be able to drop in...
In the meantime, I cannot resist replying to a couple of these comments
concerning the proposal that Canada adopt the $US. Historically,
Canadians have paid for their independent exchange rate policy with a
risk premium on interest rates, average of around 1%. That's a lot of
money. In return, we buy the ability to depreciate when commodity prices
fall, and appreciate when they rise. What these exchange rate movements
do is spread the needed adjustments to an external shock around the
whole economy, instead of having them borne solely by the resource
sector. There are other ways to protect the resource sector from such
fluctuations, namely, some sort of insurance fund. So, I have no doubt
that one could construct a good case for adopting the $US in Canada - I
am sure we would all save some money as a result.
The fact remains that Canadians would never go for it. A peg, maybe, but
using the $US, never. And a peg is not credible, as we have seen in the
past couple of years. We would have had to raise interest rates a lot to
prevent the dollar from falling in the wake of the Asian crisis. So, my
advice is to accept the floating regime - we are stuck with it because
there is not a widely acceptable alternative.
Now, here the argument usually gets a little confused, because some
think of a much wider set of benefits to a single currency. In
particular, it means (as in the email you just sent me) that we will get
convergence of tax and fiscal regimes within a single currency. I beg to
differ, on theoretical grounds. And, I offer a simple counter-example:
has the use of a single currency within Canada's borders ever proved to
be a constraint preventing enormous differences in fiscal policies and
tax structures across Canada? So, why on earth would we suppose that
adopting the $US would force such a north-south convergence?
Regards,
Steve Poloz
Mr. Barnes pointed out what he views as an excessive run up in stock prices
that has continued, almost unabated, for the past 16 years. In his view,
the North American economies are due to slow down in part because of
continued Asian and Latin American economic problems, and this will be
reflected in more modest stock market advances than we have been used to in
recent years. For Canada, continued commodity price weakness will keep
economic growth and stock market performance at modest levels.
Lise Bastarache of the Royal Bank offered her own forecast for the Canadian
economy and dollar. She pointed to recent statements from the Bank of
Canada which indicate we may anticipate continued weakness in the Canadian
dollar. A return to negative interest rate differentials vs the U.S. is
not out of the question. The positive effect of the weaker currency on
Canadian exports should be at least partly offset by a dampening effect from
weaker U.S. growth. She believes both the Canadian and U.S. economies will
grow more slowly partly because high consumer debt levels will finally
dampen consumer spending. Overall she called for about about 2% growth in
the Canadian economy over the coming year.
Jean-Pierre Beguelin of Pictet & Co., Geneva was cautiously positive about
investing in European bonds. He believes the US dollar will continue to
weaken against the Euro. He said European stocks should advance in those
areas where merger and acquisition activity is anticipated, but cautioned
against investment in European financial sector stocks due to those
institutions' exposure to Latin American debt.
Martin Barnes discussed briefly the Brazilian situation. The sudden
30% depreciation of the real was in part anticipated (or, at least,
viewed by many as inevitable), being unavoidable given Brazil's steady
loss of FX reserves and the cripplingly high domestic interest rates
that such a reserve loss usually implies. But the depreciation will
not be painless. The foreign-denominated debt will now be that much
harder to service with the cheaper real. A recession in Brazil looks
almost certain.
Finally, there was some discussion of the Canadian dollar and the
prospects for the future. Our central banker argued, effectively, that
there was a great deal of monetary stimulus "in the pipe", as
indicated by the low external value of the Canadain dollar, and thus
that the Canadian economy would be growing quickly over the next year
or so. Our economics teacher argued (I think) that there was little basis for
the depreciation of the dollar to 65 US cents because the PPP value
of the dollar was closer to 70 cents. Chris Ragan took issue with
the banker's view, arguing that the low value of the Canadian dollar was
mostly a result of a decline in world commodity prices and that, since
Canada is a commodity exporter, such a price decline represents a
negative demand shock for Canada.
The Economy
It appears that commodity prices will continue to decrease, putting downward pressure on the Canadian dollar, other factors being the low interest. It is anticipated that there will
be three successive decreases of 1/4% each in the interest rate,
the first of which is expected in March, and one 1/4% decrease in the
United States. P/E ratios are much too high, leading to a market
adjustment in the United States. There will be less impact in
Canada which did not do as well on the upward leg. Our
productivity continues to increase, while wages have not
increased to the extent that they have in the United States. The
bond market will continue to improve. There is no anticipation
of an impending recession. Fiscal stimulus will be provided by
the federal government through increased transfer payments and lower
taxes.
Brazil is currently suffering from a previously inflated interest
rate designed to protect the Real. The subsequent currency
collapse was inevitable. The low point has not yet been
reached, with currency still fleeing the country. Argentina is
in danger of falling into a similar trap. The IFI's are being widely
blamed for incorrect reading of the problems affecting both the Asian Flu
and the Brazilian Bug and for introducing measures which have exacerbated
problems rather than countering them. A case in point is the IFIs insistence
on continued crippling debt repayment by Nicaragua and Honduras despite the devastation
experienced by these countries. Individuals and nations are pouring aid into
these Central American countries, but there is no similar understanding of their
plight from the IFIs.
Reported by Herbert Bercovitz
Edited Diana Thébaud Nicholson
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