Wednesday, May 23, 2007

Bank of Canada Governor Says Single Currency 'Possible' For Canada, the United States and Mexico

Dodge says single currency 'possible'

BARRIE MCKENNA

WASHINGTON — Bank of Canada Governor David Dodge says North America could one day embrace a euro-style single currency.

But to get there, Canada, the United States and Mexico must first tear down barriers to the free flow of labour, which he pointed out Monday have “gotten a bit thicker” in recent years.

Answering questions from the audience after a speech in Chicago, Mr. Dodge said a single currency was “possible.”

The idea of a common currency has long been a subject of curiosity, particularly among Canadian academics, who see it as a way to escape sharp gyrations in the exchange rate.

The recent surge in the Canadian dollar to a 30-year high against the U.S. currency makes Canadian products a lot less competitive in Canada's major foreign market. The high loonie also makes Canada a more expensive tourist destination.

Some proponents have dubbed the single North American currency the “amero.”

It is more likely, however, that a common currency would mean that Canada and Mexico would adopt the U.S. dollar, giving up significant economic control to a central bank dominated by the United States.

Also Monday, Mr. Dodge told reporters that much of the Canadian dollar's recent increase is the result of a strong economy.

But he said the bank is closely watching the impact of the dollar's gain on Canadian inflation, adding that prices had been coming in “a little bit stronger” than expected over recent months.

“We will have to monitor that very closely,” Mr. Dodge said.

In the past two months alone, the Canadian dollar is up about 8 per cent against the U.S. dollar, and is now worth more than 91 cents (U.S.). He declined to comment on “day-to-day and week-to-week” movements in the currency.

The dollar is also rising as speculators bet that that the price of oil and other key commodities, which Canada has in abundance, will continue to rise.

Mr. Dodge also said the U.S. housing slump is taking its toll on the Canadian economy. Canada supplies about a third of the nearly $10-billion a year worth of lumber that the United States consumes.

“We're probably the only U.S. trading partner who gets really hurt by that,” he said.

In an earlier speech to the Chicago Council on Global Affairs, Mr. Dodge said the International Monetary Fund should play a far greater role in monitoring rising global imbalances in savings and investment. He said the IMF needs to be looking at countries' exchange rates, monetary policies and fiscal balances to make sure they aren't hurting other economies.

“If these policies are inappropriate, or not coherent, they can damage not only one's own domestic economy, but they can also have spillover effects abroad,” he said.

IMF reform has been a common these for Mr. Dodge, who has announced he will retire later this year. He has said the Washington-based institution must do more surveillance and less lending to stay relevant.

© Copyright 2007 CTVglobemedia Publishing Inc. All Rights Reserved.

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