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Canada's Monetary Choices in North America and Britain's in Europe - Economic Parallels and Political Differences

Authors
Disciplines
  • Economics
  • Law
  • Political Science

Abstract

There are strong economic arguments in favour of one money for one market, but multiple currencies continue to exist because of network externalities supported by national legal restrictions. The national currencies of Canada and Britain will not vanish spontaneously as the result of market forces, but they could be eliminated by acts of policy. Each country currently faces a choice between competing monetary orders, and in each of them the status quo, based on a national currency and inflation targeting, is working rather well; but the alternatives available are very different. Britain can join an already functioning European monetary order that is a component of a broader and still evolving political order, and its choice must ultimately depend upon its electorate's degree of trust in domestic versus European monetary institutions. The United States have no interest in sharing authority over their own monetary arrangements with Canada, let alone with a new supra-nationalcentral bank, so the choice facing the Canadian electorate is between the status quo and unilateral dollarization, a monetary order that is clearly inferior on both economic and political grounds.

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