The Case for the Amero: Foreword by Gordon Gibson
The three huge public policy issues for Canada over the next decade are unity, productivity, and governance. All of these questions will be importantly influenced by the current debate over a common currency with the United States. This major work by Herb Grubel is the culmination of a decade of research on the topic. It sets out the best integrated approach to seizing the advantages and avoiding the dangers implicit in this current of monetary history, spurred by the success of the euro.
Unlike some other commentators, Mr. Grubel does not see a common currency as inevitable but, on balance, very desirable. However, the greatest advantage can only be gained by carefully examining and understanding our national interests and working with the United States and Mexico (and perhaps others in the longer run) to establish the institutions that would give Canada a continuing role in the management and profits of a North American currency.
In his advocacy of the "amero" for our continent, Mr. Grubel goes beyond the work of other commentators. The justification is found not only in negative terms--a way of ending the pattern of significant long-term decline that has been the fate of the Canadian dollar over the past generation with the subsequent international erosion of Canadian wealth--but for highly positive reasons.
These include the benefits of greater price stability, significantly lower long-term interest rates, enhanced trade, greater productivity, and the creation of more wealth in Canada for personal and social ends. He gives chapter and verse on the magnitudes of expected benefits and the mechanisms by which they will be realized.
Canadian critics of a common currency take three main positions. The first is that the present system has worked well, so why tamper with it? The second is that a unique Canadian currency is a necessary bulwark of our sovereignty and independence. The third is a claim that the United States would never cooperate in any event.
On the first issue, the system has not worked well. Mr. Grubel explains how the floating exchange rates of the past generation have acted as a kind of non-tariff protection from world market forces, leading to the relatively poor productivity performance and stunted technological sector we see today. Indeed this system has "contributed to Canada's continued high and excessive reliance on the production of natural resources." A monetary union will ensure that we move to "high-tech and other profitable and expanding industries at a more optimal pace."
Simply put, attempts at long-term insulation from economic reality are counterproductive in the end. Of course Canada has many such devices scattered throughout our economy--marketing boards, industrial subsidies, high deficits and government spending--but flexible exchange rates have allowed us to continue such mistakes by the simple device of lowering our wages in the world year after year. This is not an intelligent long-term strategy.
Mr. Grubel discusses Robert Mundell's concept of "Optimum Currency Areas." This discussion arises from the seminal question (translated into Canadian terms): "If a different dollar is good for Canada, why not for British Columbia as well?" The debate ranges over site-specific short-term requirements versus long-term portfolio diversification. He concludes that while, at one extreme, a single currency for the world might not be a good thing (because of the advantages of competing systems), regional currencies, as for North America, meet the optimality test.
Mr. Grubel brings some fascinating insights to bear on the issue of a separate Canadian currency as related to sovereignty and independence. For those who say that the North American economic and political situation--with one giant player--is different in kind from the European Union, he notes that the Netherlands and Austria experienced poor performance for years until they linked their currencies to giant Germany 20 years ago, long before the advent of the Euro. Their sovereignty did not suffer.
Of course, for 100 years Canada used the same Imperial unit measurement system as the United States without any loss of sovereignty, and what is money but another unit of measurement? Tellingly, when Canada adopted a new unit of physical measurement 25 years ago (the metric system), no one forecast an increase in sovereignty for this reason, nor has it materialized.
Most fundamentally however, Mr. Grubel makes the sensible observation that "sovereignty is not infinitely valuable." Every nation in the world, even the mighty United States, has traded off elements of sovereignty to multi-national associations such as the WTO, NAFTA, and the United Nations. Canada has been in the forefront of encouraging every such development--a natural policy for a middle power.
Importantly, none of these associations have impaired our ability to run our own foreign policy or foster our own cultural institutions. (The magazine war of this year is not a counter-example. We have every right under NAFTA to subsidize our magazine industry and are apparently going to do so.)
Finally, at the conceptual level, Mr. Grubel notes the advantages of a common currency in the area of governance. Advanced societies have found it useful to put constraints on politicians in fundamental areas. The Charter of Rights and Freedoms is exactly such an example in Canada. A tripartite central bank established to protect the integrity of the amero would be less open to political meddling than any of the Bank of Canada, Federal Reserve, and Mexican central banks independently. Mr. Grubel believes the mandate of such a central bank should be restricted purely to the value of money, with local governments continuing to look after questions of employment and social issues.
As to the claim that the Americans would never enter a currency marriage that gave Canada and Mexico seats on the governing board and their own share of "seigniorage" (the profits governments gain from printing money, about $2 billion annually for Canada), he makes several observations. The first is that the Americans will need new allies to maintain their ascendency vis à vis a large and growing Europe. A second is that they have seen the advantages to be gained through the WTO and NAFTA (notwithstanding the Ross Perots of this world), and a common currency fits the same mould. Finally, there are strong geographical ties across the border--the United States and Canadian prairies for example share many of the same economic concerns--that could find useful expression on a joint board.
Of course this development will take time. No one would have guessed 20 years ago that we would be almost 10 years into NAFTA today. But such are the currents of history.
For now, Canadian government politicians and bankers pooh-pooh the idea of a common currency. This is natural; it is the cautious route. And Ottawa is so fixed upon making the world difficult for Quebec sovereigntists that they see a common currency as solving a problem they do not want solved. This too will pass in the fullness of time.
For now, the job of academics and commentators is to explore the grand concepts and the nitty-gritty details that need to be worked through. Mr. Grubel's work attacks both levels admirably, from the major (optimal currency areas) to the minor (what symbol do you put on the coins?). It is a major contribution to one of the most important public-policy discussions of the coming generation.