OTTAWA, Ont. — More and more people are lining-up to tell the feds the time has come to adopt the U.S. dollar as the North American standard.
Ontario and Quebec have become so closely tied to the U.S. they may use their clout to try to push Ottawa to adopt the greenback as the Canadian standard, two leading economists have advised Ottawa.
“The implication is more from a political point of view,” Serge Coulombe, an economist at the University of Ottawa, tells local media. “Over time, people in Ontario and Quebec will lose support for the Canadian dollar. They are seeing the increasing costs of using a different currency when doing U.S. transactions.”
Coulombe, along with Michel Beine , of the University of Lille, in France, outlined their conclusions to the Privy Council Office, the Department of Finance and the Bank of Canada. The paper was partially financed by the Government of Canada.
Beine has worked in Europe, providing economic analysis to governments on the impact of a single currency before the European Union adopted the euro.
And the paper — titled Should Canadian Regions Adopt the U.S. Dollar? — applied the same methods used in assessing the development of the euro, Coulombe says.
“The close correlation in the business cycle of [Ontario and Quebec] and the U.S. means that they don’t need exchange rate movement in order to protect the economy because it basically follows the U.S. business cycle,” adds Coulombe.
The rest of Canada, particularly Alberta, Saskatchewan and Manitoba, are becoming less aligned with the U.S. business cycle, says Coulombe, because those provinces are producers of commodities, such as oil, wood and minerals. The Bank of Canada and the federal government have long held to the view that the Canadian dollar should float in value against other currencies so abrupt changes in international prices for commodities can be absorbed by changes in the exchange rate.
The difference in economic structure between the commodity-producing West and industrialized central Canada means that there is no optimum exchange rate policy that works well for the whole country.
The two economists say in their paper that if Quebec became independent, it would be logical for the province to adopt the U.S. dollar and this could present Ontario with a major political problem.
“There is a strong incentive for Quebec and Ontario to share the same currency. With Quebec out of the Canadian monetary zone, the optimal currency for Ontario would clearly be the U.S. dollar,” the paper says. “In this scenario, the future of the Canadian dollar appears to be in jeopardy.”
In a speech delivered to delegates attending the 75th annual Ontario Trucking Association convention, renowned economist Dr. Sherry Cooper pointed out that, based on current trends and historical data, she is projecting a Loonie worth only $0.50 in just seven years.
“Is making the switch to the U.S. dollar at 63 cents a good move for Canadians?” she questioned. “Well, it’s better than making the switch at 50 cents.”
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