Perspectives on a Potential North American Monetary Union

Abstract

The idea of a single currency for the United States, Canada, and Mexico usually refers to one of two approaches: the unilateral adoption of the U.S. dollar by Canada and Mexico-dollarization-or monetary union, the development of a joint currency that could be managed by all three countries. ; This article examines the idea of monetary union in North America. The author discusses specific criteria for a single currency for North America as well as the pros and cons of a monetary union and dollarization in the North American context. The evidence presented suggests that Canada and perhaps even Mexico are candidates for forming a single-currency area with the United States at some stage. The article concludes that monetary union appears to hold several advantages over dollarization from the perspective of both the United States and its NAFTA partners. However, an important question remains to be answered: Are the NAFTA countries currently ready for a monetary union? The answer involves both economic and political variables as well as some practical implications. It seems unlikely that the United States, Canada, and Mexico will pursue this goal in the near future.

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