Canada’s Parliamentary Research Branch:MONETARY UNION WITH THE U.S.: THE PROS AND CONS

1 min read

Canada’s Parliamentary Research Branch:MONETARY UNION WITH THE U.S.: THE PROS AND CONS

In recent months, there has been much discussion about the possibility of a monetary union between Canada and the United States. Various scenarios have been put forward for implementing such a change. The public, however, is often confused because experts switch between different concepts of “monetary union.”

A monetary union with the United States would strictly involve creation of a new currency, such as the “amero” proposed by Professor Herbert Grubel, to replace the present American and Canadian dollars. This option is generally considered unrealistic, given the strong attachment of Americans to their own dollar. The two countries could, however, find another way of using the same currency, through “dollarisation.” In brief, under dollarisation Canada would adopt the American dollar, as some countries have already done (Panama and Liberia), or are considering (Argentina). Dollarisation would involve the most loss of sovereignty over Canadian monetary policy.

Money performs three functions: it is a unit of account, a means of transaction and a store of value. Different monetary regimes will have different effects on these functions.