Though I couldn’t quite come up with a catchy name like “the Euro,” it doesn’t change my wonder at whether North America could do a similar thing in creating a single monetary unit.
Possible pros and cons of a North American Dollar/Peso/Monetary Unit? Ah! The NAMU! Would the pros be the same as they were for Europe, or would the cons completely outweigh everything?
Please try and keep nationalism out of this and consider North America as a single economy. I also don’t like the cop-out “we don’t want to join” garbage…its all or nothing, folks. Should we do it? Should we grab all of the western hemisphere instead? Is this too large of a topic?
Could we do it? Yea, I’m an optimist at the moment.
I am not an Economist (IANAE?), but if the Europeans switch over successfully and North Americans see it as an advantage to trade, you can bet there will be a movement to try to even the playing field. After all, we’re talking about big business on global markets, and relatively few organizations have as much clout in government as big businesses with a common goal.
I leave it up those who are more knowledgeable than myself to work out the details…
The problem with a hemispheric currency is that the U.S. and Canadian economies are somewhat more robust then the rest of the American nations, who are prone to cycles of hyper-inflation and depression. This might be one of those “We don’t want to join” arguments that you don’t want to hear, but the Amerodollar is probably going to be a really unstable, devaluated currency, and will definately be a drag on the economies of the U.S. and Canada, for example.
Do the economic cycles of Mexico, the U.S., and Canada operate reasonably in sync? If, for example, Canada’s economy, due to its different mix of goods and services, is generally in recession when the U.S. and Mexico are in an upswing, and vice versa, it will need different interest rates than at any one time than the other two countries;
Are the macroeconomic conditions in the three countries such that a NAMU would work? Example, Mexico needs more foreign investment than the U.S. and Canada. As an incentive, they may wish to offer high interest rates on bonds and the like to draw the foreign money in. Will they be able to do so without control of their monetary policy?;
Are the macroeconomic conditions such that the NAMU will be relatively stable? In Euroland, the countries wishing to join had to meet set inflation and debt ratio targets for entry, so that the Euro wouldn’t be seen as a risky currency.
Hmmm, so the “we don’t want to join” isn’t really a cop-out, then. Well, so be it.
The thought that lead to this was actually, IMO, a “natural” progression from NAFTA, which in itself may be a macroeconomic link between Canada, the US, and Mexico. Last I read Mexico was actually doing OK for itself, even if that was achieved through some aid. Are these three countries really so different that a single monetary unit would be wildly unstable, or even more unstable than the Euro?
It seems to me that a single monetary unit between the three of us might provide a chance for better stability overall, even if it might devaluate the American and Canadian dollar during the changeover.
Its just…well, I’ve never quite understood how competing currencies were a good idea outside of a nation but a bad idea inside of one. If we have free trade, remove tariffs from NAMU countries, and all use the same units of money, won’t that actually work to stabilize all three economies?
What about a “national” private banking scheme? That is, we’d have Namu banks set Namu rates similar to the Fed’s control of interest rates; but, in an analogous manner to credit unions, each government could still have their own additional banks to aide their particular monetary needs?
It would be better to phrase the first two questions like the third, I think, ie in comparison to Europe, which is going ahead with a single currency now (and assuming the Euro will be successful).
Wasn’t there another thread (I’m too lazy to look it up) about countries in Latin America adopting the dollar straight up, and another one about Canada possibly doing the same thing? I think that’s the most likely way we will get a common currency in this hemisphere.
The trouble is, there are really two tiers of nations in the Americas. The US and Canada on one hand, and the rest on the other. The US and Canada are so intertwined that monetary union would make a lot of sense. Except that because of the relative sizes of the US and Canada it really wouldn’t be union, it would effectively be Canada giving up its currency and adopting US currency, no matter what name we gave it. And Canada is unlikely to do this and I don’t blame them. Canada is only likely to join into a monetary union if there are other countries besides the US involved.
Next, the other countries. And has been pointed out, they have very different economies than US/Canada. So monetary union with them wouldn’t make much sense at the current time. Maybe in 10-20 years when latin america is in better shape it will make sense. Of course, we could get “de facto” union if other countries simply dollarize unilaterally.
But we’re going to have to wait and see how the Euro goes. If the Euro causes major problems then monetary union is going to be jettisoned. If the Euro does well then everyone is going to want to do it.
Since there are so many in Europe who don’t like the Euro and have advanced many reasons (some of them exceedingly good) as to why each country should retain its own currency, and since many countries in Europe are no bigger than a state in the USA (pause for breath),
how about turning this discussion round and asking if there is a case for splitting the US dollar into separate state currencies, or maybe larger but still regional currencies?
kabbes, surely you jest… competing currencies within the continental US? What, the banks aren’t wealthy enough as it is, now you want to give them exchange rate commisions too?!?
You mention what always bothered me bout our (US’s) setup. Everything I’ve read implies that competing currencies are “a good thing”. So why the Euro, and why the dollar?
Here’s an argument in favour of separate US currencies for you: interest rates.
I can’t possibly believe that economic circumstances all across the US are so in line that when your central bank decides to raise or lower rates it does so to the benefit of the whole country. Having separate currencies would allow each state to set its own interest rates in its own best interest (hoho). This flexibility would especially aid any state in an economic downturn.
Oh, I support your thinking there, kabbes ol’ boy. What gets me is that the cry will be that it will stagnate trade because of currency issues. I see that as totally false, and in fact, the competeing currencies (and the state’s banks’ interest rates) should actually increase trade through competition of said interest rates. Why live in CA where I pay 5% when I can jog over to Oregon and get a hot 3%. Not only that, but the exchange rate for said transactions, including tarrifs, amount to only 1.2%…so I save 0.8%, and can actually buy more junk.
Or so my mind tells me; there must be an argument against competing currencies or the Euro would have never come around in the first place. Wait. there I go assuming people think again.
Well the huge argument against competing currencies is that they stifle trade. It’s a lot easier to export when you don’t have to worry about your input and output costs rising and falling compared to the competition in a manner over which you have no control.
There are lots of practical free trade advantages to a single currency.
Damn you, kabbes, pick a side already I think that the strength of a secure, single monetary unit far outweights any benefits of competing currencies. I think the sooner the world consolodates the number of currencies the better this effect will be.
I believe that by partaking in a single currency scheme, countries which are trying to become more stable will find immense support in joining such a scheme instead of the “sink or swim, as long as we can buy your bananas” mentality.
I believe that NAFTA and similar tariff-removing ideas are central to promoting trade, which surely generates more revenue from a tax view than tariffs alone.
One of the reasons the US stock market has done well recently is that people have come to trust the judgment of the Fed/Alan Greenspan with respect to monetary policy issues (control over interest rates and to some extent monetary supply). If you’re gonna have 50 petty economic bureaucrats with that kind of power in each state, not all of them are gonna deserve or get the “respect” factor and, when a time to act comes, you are gonna get some successful moves, some less prudent moves and some moves that conflict with each other. Unless you’re gonna stop a business in Michigan from getting loans from an Indiana bank, Indiana’s ability to raise interest rates will be limited. Oh, and it is also currently illegal (actually unconstitutional, as was just pointed out to me here), for the states to have their own money. But don’t let that stop the speculation.
Is this the part you were referring to, erislover? If so, I think I need help understanding what you mean. Credit unions don’t really give us any analogy here–private(not government-owned) banks and credit unions can offer whatever interest rates they want to borrowers and depositors (subject to usury laws which are mostly de facto defunct (heh) these days); whether borrowers/depositors accept these terms will depend on the terms offered by competitors, and banks/credit unions compete on pretty much equal footing. If namu rates/monetary supply is set by a namu fed, what role is there for “additional” banks to play? They wouldn’t have a separate currency to set rates for, and you can’t let them print additional namus because that would lead to chaos. If one additional bank set lower rates, all borrowers would flock to it (and there should be no barriers to this if free trade is the reason for implementing the namu in the first place); this gives each “additional” bank the power to effectively set rates for the entire namu empire, and this eliminates any ability to set policy solely for a limited area. So, I must not be getting your meaning–if you elaborate, I’ll try to respond again.
As for whether or not monetary unity is a good idea, my opinion is that it is a good idea only if it accompanies political unity. Monetary policy is an important tool which the US (and any nation) should not give up without a compelling reason (hyperinflation, cost savings and elimination of trade barriers may be compelling reasons for some countries–I do not think the US currently has problems in these areas). If the US and Canada could overcome the immense political issues involved, I think total political unification would be economically beneficial; unification with Mexico too, but there the political and social issues are even greater. Neither event will happen in my lifetime.
I think that the strength of a secure, single monetary unit far outweights any benefits of competing currencies. I think the sooner the world consolodates the number of currencies the better this effect will be.