Europe, which has had a bit of testy feelings among the other kiddies in their sandbox, has managed to somehow get rid of the mark, the franc, the peso, the lira, etc.
South America would appear to, on its face, be starting from a much better point than Europe was. You have 2 major languages instead of more than a dozen. They have a history that I think we can all pretty much agree is less contentious & bloody then that of Europe. You have countries with less dramatic cultural and racial differences between them.
I think the Euro (and similar simplification) is largely because Europe has been heavily involved in two World Wars and we want to be united (although we can’t always agree on how).
I think you need such a force.
Why don’t the US and Canada share a currency?
Optimum Currency Area. SA as a whole is too large, politically unstable, and has unequal levels of economy. The economies of Chile/Argentina > Uraguay/Brazil/Venezuela/Bolivia/Peru > The rest. Thus within SA, Chile/Argentina might be able to share a currency, and Uraguay/Brazil/Ven/Bol/Peru share one, etc. But then you would have to account for how price shocks in one nation would affect the other. For instance Venezuela’s involvement in OPEC would routinely affect the currency of Brazil. Is that a good thing?
as for US/Canada. Some economists already feel that the east coast vs the west coast are different enough and individually self sustaining enough for the US to have 2 types of currency. One example is look at gas prices on the east vs west. another would be to look at housing prices. they fluctuate relatively independently (barring large price shocks like the housing bubble). Toss in Canada and you have an even less flexible currency.
*flexibility as in the Fed being able to manipulate it monetarily.
**This would also be why a WORLD currency wouldn’t be desired. a price shock like Zimbabwe’s inflation or Argentina’s currency crises in 98 or the asian banking fiasco of the late 90’s would all have even more devastating effects if we shared the same currency. different currencies insulate the damage to that area.
Remember that the Euro is a fairly recent development; there are people on this board who have not yet heard from their biological clocks who can remember the time before the Euro was established (or at least before it became pretty much standard).
As pancakes3 notes, South America is making initial steps toward European-style unification, probably somewhere near 1960 in terms of progress as measured against a “what Europe did when” timetable.
Also, not all European nations have gone for the Euro thing. Denmark stayed out of it as well as England, etc. It would seem that not all European nations are yet convinced of the wisdom of a common currency.
I agree that South American seems too economically unstable and unequal to have a common currency just now.
Bosda, I’m now accusing you of being purposely stupid, but seriously?
North and South America have precisely three major languages. Even French isn’t really big. It’s English, Spanish, and Portguese. Yes, there are lots of local cultures and some remaining languages. And none of them are remotely important, anymore than Catalan or Welsh.
In a general sense you’re correct - Quechua for example has maybe 6-10 million speakers spread throughout the Andes, making it a reasonable cognate of Catalan.
But one notable exception is Paraguay, where up to 90% of the population speak Guarani and a quarter are monolingual in it. It’s also reaches out a bit beyond its borders to Argentina and Brazil and, very unusually, it has spread beyond the original indigenous population to be embraced in all walks of life, including some elements of the upper class. Of course most of the population also understand Spanish.
So a bit of an anomaly, but one worth pointing out as I think it is one of those interesting factoids little known outside the area.
But one would assume that under a world currency scheme, power wouldn’t be given to little shithole countries like Zimbabwe to be able to inflate the currency like they do with their own.
The entire coutry o Paraguay has fewer than 7 million people. Not significant.
Though it is interesting.
This is true, but it’s not necessarily helpful. Europe and the United States are having a different problem where banks can’t price their currency like they need to. The economies of the east and west coasts (or maybe the coasts versus the heartland) or even France compared to Italy next door, may have very different needs.
But you also get nasty pricing shocks where one region can seriously change rapidly. If not bounded with a currency, it can be much worse. Thus far, the EU bank has been given a monomaniacal mission. That may last only as long until one region grows desperate for change, and then things may get ugly. Even in the US, where the regions have grown up together, the Fed is starting to get more and more influenced by politics (or reverting to that) and tensions may increase between the more-stable central economies and the perfect-economi-storm coasts. Money policy is now leaning towards inflation heavily for them, but it may absolutely devastate us on the inside if things don’t change fast.
The more comprehensive Union of South American Nations (essentially a merger of the Andean Community and Mercosur, and still in its early stages of organizing) also plans to look at a joint currency eventually.
No, because there’s no central authority to NAFTA, equivalent to the Federal Reserve or the Bank of Canada. The three parties to the treaty have all voluntarily agreed to reduce their tariffs and allow access to their markets on the same terms, and subject to the same dispute resolution mechanism. The three are equal partners in the terms of the treaty. Any changes to the treaty need all three parties to consent.
To make a common currency work, there has to be a central bank, able to make hard decisions quickly, as we’ve seen over the past year. Would the U.S. be willing to have that central bank operate on an entirely bipartite basis, so that Canada has exactly the same authority on the bank as the U.S.? I would doubt that very much, which in turn means that even if Canada has seats on the bank, it would essentially be under U.S. control, making economic decisions largely in favour of the U.S. economy.
To elaborate further on that point - the Canadian economy has come through the recent recession much better than the US economy, without the subprime mortgage fiasco and without losing a single bank to bankruptcy or government take-over. Yes, our federal government has gone into deficit to create a stimulus, but that deficit is no-where near what the U.S. needed to do, through its Treasury and the Federal Reserve.
If we were in a common currency with a US dominated bipartite Federal Reserve, would the US have expected Canada to kick in an equivalent amount of money to keep the economy running, even if the problems arose mainly from the US economy? If the bipartite Federal Reserve had the power to request funding from Canada, then it would have a large say in Canada’s fiscal and monetary policy. Alternatively, if Canada had the power to refuse to contribute the amount requested, wouldn’t the US taxpayers see that as Canada getting a free ride, and Canadian taxpayers not pulling their fair share?
Common currency is much more unifying than a free trade agreement.
I would suggest that a single currency has fuck all to do with common language, nor race either - and I would suggest that South America has no more a peaceful history than Europe, merely that the violence has been domestically focused rather than State to State given their ‘frontier’ character.
But more to the point, the real issue is as pancakes said, that South America shows no signs of being an optimum currency area. A single currency area works best when the economic areas are in sync, and over the long term that requires free flow of goods, capital and labour (i.e. open borders), which I might add is a serious challenge for the Euro zone that this recession / crisis is highlighting. South America meets none of these conditions - i.e. no real free flow of goods (EU, USA/Can, fine), capital (EU, USA/Can, fine), labour (USA fine internally, not re Can, EU very mixed bag). Pancakes sub-regions sound right to me.
South America first needs to establish genuine free trade and a common customs base, then work to better intra-S.Am trade flows intregration and capital flows integration (investing in each other). Only once that is moving does a common currency potentially make sense.
I would suggest this is incorrect. Labour and capital about as freely as one can realistically expect within the US, and near freely between Canada and USA (although I hear from Canadians that the post 11 Sep USA dive into gibbering paranoia about Foreign is seriously impacting this for the negative). Canada’s only real reason not to engage in currency union is political, not economic.
It is nice for you to bring further evidence that Chavez is your typical Hard Left economic illiterate. The Bolivarian Alliance presents all the opportunities to recreate the Comintern on a more shambolic sort of Cuban basis.
That is not per se anything relevant to a common currency. Netherlands is far better off than Spain due to better domestic economic policy, and they are both euro zone. So is France.
The main difference is Canada can manage it’s interest rate seperately from the USA, unlike Netherlands relative to Spain, but the Gov spending - fiscal policy - remains largely free of that (in particular as the EU deficit rules have had no real restrain…)
No, because that is no Monetary Policy, that is Fiscal Policy.
A currency union would not in itself force Canada to contribute to Equity injections in bad banks.
No, Monetary Policy would be unified, but not fiscal. Of course fiscal can’t be done in a vacuum, but on the Monetary side there is not a necessary relationship.
Of course the US with its messy financial sector oversight makes things chaotic, so a scenario of monetary union with a harmonisation of financial sector regulation would be a real recipe for disaster.
Taxpayers have fuck all to do with monetary policy on the funding side.
Quite so. Even more than an FTA, a common customs authority and a good bunch of other common (as in unified administratively) bodies would be needed to get anywhere near EU levels of integration.
Queerly, economically USA and Canada are far more similar and integrated than EU.
Every few years someone suggests Australia and New Zealand should share a currency. While there’s certainly many valid aspects to the argument, there’s also the fact that someone’s currency is going to end up “weaker” as a result. Perhaps the same is true in South America?
Aren’t many Latin American countries already pegged to the US dollar? If so, then surely them all switching officially to the dollar wouldn’t make any economic difference, right? And if they were all the same currency as us, then they’d be the same as each other, too.