At the time I wrote this article, the Canadian dollar traded at US$0.9575. Not surprisingly, Canadian manufacturers and exporters have been pulling their hair out in frustration. A similar love/hate pattern has been developing in Argentina, only as a mirror image, since most Argentineans would rather have any currency other than their own. And south of the border, some U.S. congressmen have just about had it with China’s Yuan being pegged to the U.S. dollar.
An idea spawned by Benn Steil of the Council on Foreign Relations in New York suggests we do away with individual currencies and adopt one of the two most globally known currencies: the Euro or the U.S. greenback.
On one level, Steil’s reasoning makes a whole lot of sense. The world did away with the gold standard a long time ago, which resulted in the slaughter of many local currencies under the sword of globalization. And let’s not forget about inflation and rising interest rates being a perpetual threat to many vulnerable world economies.
The idea of one globally accepted currency would effectively abolish monetary nationalism. The world is already acquainted with the benefits of fewer currencies. In Europe, before the market unified, nationalists were lamenting about having to relinquish their respective countries’ airlines, stock exchanges, and currencies. Yet, more than a decade later, unity has yielded more benefits than not. Even the most reluctant EU member, Italy, has finally rid itself of high interest rates and the volatile Lira.
So, what would happen to Canada if it were to relinquish its airborne loonie and embrace either the Euro or greenback? First, the dilemma is, which currency to choose: the Euro is stronger, but more than 80% of Canada’s trade is with the U.S. Second, while the soaring loonie is hurting manufacturers exporting to the U.S, the rest of our economy is plugging along just fine and doesn’t need a prop of any kind.
The idea of a globally adopted currency might be good for countries notorious for currency crises, such as Brazil, Argentina, or Turkey. But for Canada, well, I believe we would be much better off holding on to our own currency, just like the U.K. did holding on to its pound regardless of its EU membership. We are a long, long way from a currency crisis, and inflation and volatile interest rates are very much under control.
But, most importantly, reasons why some economists are adding their votes for a global currency are more political than economic. This is why Canada, a politically stable country, should stick to its loonie. I mean, in our case, there is really no need to reinvent the wheel, is there?