Canadian, US Dollars at Parity

For the first time in 31 years, the US and Canadian dollars have the same value. For Canadian day-trippers, the US is a bargain-hunters paradise. For Canadian exporters, life just got that much harder. And for book-lovers in Canada, that higher price printed on books is even more annoying. With the US and Canada as economically intertwined as they are, and with currency parity, it’s time to consider a monetary union.

Canada and the US are the world’s largest trading partners. Canada’s smaller economy and population make it particularly attuned to changes in the US. More than 80 per cent of Canada's exports, representing roughly 25 per cent of its economy, flow into the US economy. Inflation in Canada is decelerating, standing at 1.7%. In the US, the Consumers Price Index rose 2.0% in August, and there is pressure on both the US and Canadian central banks to lower interest rates in light of the widening global credit crunch.

All of this boils down to convergence. When the British debated going into the eurozone, the argument largely hinged on the fact that Britain’s economy tends to be counter-cyclical to the broad European economy that the eurozone was creating. This means that policies that would help one region would hurt another. Thus, the British decided not to decide until there was a more opportune time. The US and Canada have converged greatly of late.

Monetary union does imply a certain loss of sovereignty, and there are forces in both countries that would oppose that loss. Having a monetary union with Canada would open up the US economy to political risk from the never-ending Quebec question. By the same token, Canada may face risks from terrorism to its south that from which it is currently insulated.

The benefits, though, to a wisely timed union far outweigh the potential problems. Capital flows become vastly easier, and investors can remove the foreign exchange risk from their calculations. For workers and consumers along the border (and most Canadians live within 100 miles of the US border), there would be enhanced opportunities to sell labor and purchase goods and services that currently don’t make economic sense.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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