Disadvantages Of Dollarization In Canada
Introduction
This review aims to thoroughly analyze the possibility of Canada joining a North American Monetary Union. Through globalization and trade liberalization Canada has become more and more economically dependent on the United States. Therefore a monetary union is something for the nations to consider for facilitating trade and further stabilizing inflation. Since the introduction of the euro as the national currency in Europe several other countries have been considering monetary unions. Research shows that there are several advantages to dollarization that would be both favourable for the US and Canada. As David Rosenburg stated “Canada enjoys all the inconveniences of a floating exchange rate and independent monetary policy, with precious few of the benefits.” What one must consider is if these benefits outweigh the potential loss of sovereignty. Overall, a country’s decision to officially dollarize depends on broad factors as well as narrow calculations of the quantifiable costs and benefits of seigniorage. That being said, with the increase in technology …show more content…
The crucial difference between unofficial and official dollarization is whether the foreign currency is used voluntarily by residents even though it is not legal tender or whether it is officially recognized as legal tender by the government. Official or full dollarization is a complete monetary union with a foreign country from which a country imports a currency, by making the foreign currency full legal tender and reducing its own currency.1 Officially dollarized economies also have few or no restrictions on capital account transactions, and transactions for external payments are relatively free. The use of the foreign currency in their domestic economies is often necessitated by virtue of their openness and heavy reliance on trade (and factor mobility) with their larger
This review aims to thoroughly analyze the possibility of Canada joining a North American Monetary Union. Through globalization and trade liberalization Canada has become more and more economically dependent on the United States. Therefore a monetary union is something for the nations to consider for facilitating trade and further stabilizing inflation. Since the introduction of the euro as the national currency in Europe several other countries have been considering monetary unions. Research shows that there are several advantages to dollarization that would be both favourable for the US and Canada. As David Rosenburg stated “Canada enjoys all the inconveniences of a floating exchange rate and independent monetary policy, with precious few of the benefits.” What one must consider is if these benefits outweigh the potential loss of sovereignty. Overall, a country’s decision to officially dollarize depends on broad factors as well as narrow calculations of the quantifiable costs and benefits of seigniorage. That being said, with the increase in technology …show more content…
The crucial difference between unofficial and official dollarization is whether the foreign currency is used voluntarily by residents even though it is not legal tender or whether it is officially recognized as legal tender by the government. Official or full dollarization is a complete monetary union with a foreign country from which a country imports a currency, by making the foreign currency full legal tender and reducing its own currency.1 Officially dollarized economies also have few or no restrictions on capital account transactions, and transactions for external payments are relatively free. The use of the foreign currency in their domestic economies is often necessitated by virtue of their openness and heavy reliance on trade (and factor mobility) with their larger