North American 'amero' idea panned in N.B.
New Brunswick Telegraph-Journal
Thu 31 May 2007
Page:
B1
Section: Money
Byline: Melissa Dunne Telegraph-Journal

Bank of Canada Governor David Dodge has resurrected a
debate over North America embracing a euro-style single currency one day.

But, before that possibility can become a reality, Dodge said earlier this
month that the countries involved would have to "tear down borders in terms of
labour flows." In recent years, borders between Canada, the U.S., and Mexico
have "gotten a bit thicker", he said.

David Plante, New Brunswick vice-president of Canadian Manufacturers and
Exporters, also thinks the "thick" borders would have to be overcome first.

"There are a whole lot of caveats and a host of issues," says Plante.

"Dodge talked about breaking down the barriers between the countries, but how
would this actually happen?"

The bank governor said the idea of Canada, the United States, and Mexico
sharing a common currency, similar to Europe's euro, was "possible" when
answering audience questions after a speech on global economic institutions in
Chicago. A common currency, dubbed the "amero" by some, could help avoid
dramatic fluctuations in the exchange rate.

It is not the first time questions like this have arisen.

In 1999, two Canadian think tanks, the C.D. Howe Institute and the
Fraser Institute, published papers supporting the amero.

Both papers said the main benefits of a common currency would be: greater
price stability, lower long-term interest rates, and greater wage and price
flexibility.

The Fraser Institute even went as far as coming up with a logo for the
unified currency. featuring a black circle, with a black Capital "A" in the
middle of a white background. The authors of the papers could not be reached for
comment Wednesday.

Of course the arguments made then may not hold up now considering how much
has changed for the loonie since 1999.

On May 31, 1999, the Canadian dollar opened at 67.70 U.S. cents. In
comparison, the loonie has recently held steady above US93 cents.

Earlier this week, C.D. Howe Institute senior policy analyst, Yvan Guillemette, said
since that, the turn of this century, the institute has published papers for and
against the amero concept, and that the institute has no official stance on it
at this point.

One New Brunswicker is completely against the amero concept,

David Ganong, the president of Ganong Brothers Limited and a member of the
North American Competitiveness Council, says a common currency would result in
Canada "losing the freedom to manage our own economy."

The president of the St. Stephen-based chocolatier is the only Atlantic
Canadian chief executive officer among the 35 NACC members, appointed by the
Canadian, U.S. and Mexican governments. The council tackles cross-border issues
facing the three trading partners.

Talk of a unified currency comes on the heels of the loonie soaring to 30-
year highs over the past few weeks. Some economists are talking about the loonie
reaching parity with the U.S. dollar. But, the loonie cooled a smidgen
Wednesday, off 0.03 of a cent to US93.12 cents.

The cooldown came after the Bank of Canada kept interest rates steady at 4.
25 Tuesday. but strongly hinted that a hike may be necessary soon to curb
inflation.

Ganong says he does not think the loonie will reach parity and that any form
of a unified North American currency is a long way off.

Yet, he points out that the euro model proves unified currencies can work
well. He also notes there is a history of currencies linking themselves to the
U.S. dollar.

The Bermuda dollar has been pegged to the U.S. dollar since 1970. And, the
Hong Kong dollar has been pegged to the U.S. dollar since 1983. In 2005 Hong
Kong moved from a fixed exchange rate to a linked exchange rate, which widened
the trading band to five Hong Kong cents below and above the peg rate.

For Ganong, although these examples "apparently work" it is important for a
"complex country like Canada to retain its independence."

Stephen Poloz, chief economist of Export Development Canada, agrees.

"While a lot of companies might find it convenient, and it would eliminate a
major risk factor, a North American dollar is not a good idea "... The Canadian
economy has become less similar to the U.S. (economy)," he says

Jason Childs, a University of New Brunswick-Saint John economics professor,
also agrees.

"The U.S. economy is not doing well and the Canadian economy is doing well,"
notes Childs.

"The U.S. needs stimulating, while inflation in Canada needs to be slowed
down a bit. This divergence in the goals means linking our currency to the U.S.
doesn't make sense right now."

Plante, and Ian Munro, the director of research at the Atlantic Institute for
Market Studies, think that the amero debate is still a "theoretical debate at
this point" and has a long way to go before it would become a reality.

Ganong hopes the unified currency never gets beyond the pipedream stage.

"It is not a good idea. It would result in a loss of flexibility "... With
the exchange rates right now it would be a liability for Canada," he says.

- with files from Canadian Press and Meghan Cumby

© 2007 Telegraph-Journal (New Brunswick)

Length: 847 words