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The Case for the Amero: Appendix: Assessing Alternative Approaches to Exchange Rate Fixity

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Option(a)	Canadian Dollar Remains?	Seigniorage?	Bank of Canada Remains?	Exchange Rate Variability	Policy Flexibility	Implementation Costs	Implementation Time	Clearings	Reversible?	Access to US Capital Markets	Maintain Financial Sector Policy?
Fixed exchange rates	Yes	Yes	Yes	Fixed, within a narrow band	Partial, subject to gearing policy to maintaining the fixed rate	Minimal; need to select "entry point"	One to three years; need to establish credibility	Status quo plus smaller transactions costs for US clearings	Yes	Enhanced access vis-à-vis flexible rate status quo	Yes
Currency Board	Yes	Yes, but offset by cost of carrying foreign currency	Yes, but under currency board rules	Fixed at one-to-one;(b) no band	Less; Bank of Canada is a passive actor; government deficits can be financed only by borrowing	Could require internal revaluation of prices and a new currencyc	Several years, presumably preceded by fixed exchange ratesb	More integration with US clearings systems	Yes, but expectation must be that it will not be reversed	Larger still	Yes, but with more US banks operating in Canada
Common Canada/US Currency	Maybe; depends on arrangements	Yes	Yes, but under the euro arrangement	None (common currency)	Depends on arrangements for Canadian input into US Federal Reserve policy	Internal revaluation of prices and a new currency	Probably a decade, as in the euro process	National clearings and then full integration into Canada-US clearings (presumably along the lines of the euro target scheme)	Yes, but only under exceptional circumstances and with large costs	Full	Yes, but may be greater harmonization over time with integration of clearing systems
Market Dollarization	Yes, but much reduced scale of use	Yes, but much less because of reduced scale of Canadian dollar use	Yes	As great or greater than now, with reduced scale of Canadian dollar use	Reduced relevance of Bank of Canada policy for Canadian households and businesses	Parallel currencies and a depreciating Canadian dollar; large wealth transfers from Canadian-dollar asset holders to Canadian-dollar liability holders	Variable, depends on private sector agents	Progressively integrated into US clearings systems	Unlikely, once private sector operation on US-dollar basis	High for those using the US dollar	Will likely be drawn more into US financial policies
Policy Dollarization	No	No	No	None (no Canadian dollar)	Minimal, and Canada could be drawn into US policy orbit	Moderate to large depending on currency replacement procedures and revaluation of existing Canadian dollar contractual arrangements	Variable, depends on private sector agents	Progressively integrated into US clearings systems	Not without major problems (no central bank, no separate currency)	Full	Will likely be drawn more into US financial policies

(a) For all options, the Canadian price level would be tied to the US price level and Canada would follow the US business cycle more than under the status quo.

(b) This need not be the case. If a currency board were implemented at, say, 75 US cents to the Canadian dollar, this would not require the issuing of a new currency; the implementation time would also be much reduced.

Source: Courchene and Harris 1999a. Reprinted with permission.

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Last Modified: Sunday, September 26, 1999.