The Amero: Should the US support a North American-wide currency like the Euro?

No

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by Robert C. Sage

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Introducing the Amero would give up American control of monetarist policy for our country. Monetary policy is recognized as perhaps the most direct and immediate ways to impact the economy of a country. The size of the US economy dwarfs those of Canada and Mexico to a greater extent than the combination of Germany, France, Spain, Italy (and even the UK) within the EU. The situations in Europe and North America are simply not comparable.

If we gave up the US Dollar for the Amero, the new equivalent of the Federal Reserve Bank would have to make decisions on liquidity of currency and prime rate taking the situations in Canada and Mexico into account. If we were to do that, we might as well agree to unify the three as a single nation, so the entire range of economic levers, including fiscal and foreign trade policies, etc. could be managed in a unitary manner. Otherwise, it would cause confusion and strife, even if Canada and Mexico agreed to the Amero.

The truth to the matter is that because of the dominance of the US economy within North America, monetarist policy for the Amero would be dominated by the USA. That would likely cause both Canadians and Mexicans to feel disadvantaged and could easily translate into civil unrest. Our neighbors could justifiably complain that their economies were affected by Amero decisions predominantly based on the economic conditions in the US.

In Europe, the Euro made sense because it enabled stability of currency value where previously due to relatively small size of each of the predecessor currencies, there was greater variability. The stability of the Euro has enabled businesses to predict future currency rates and interest rates with greater accuracy than previously. That might be true for Canada and Mexico in the case of the Amero, but not the US. Adding the economies of Canada and Mexico to the American for common monetary policy would not even add 50% to the total value under management. The effect for the US would be minimal and it would not likely stop the trend of central bankers towards use of the Euro for hard currency reserves.

Because the impact of North American currency integration would be rather small for the US in terms of stabilizing relative currency value, there is not compelling reason for us to do it. Inevitably, the emergence of the Amero would require the new central bankers to consider the implications of all policy changes not only on the US economy, but also on those of Canada and Mexico. That would tend to diminish the ability of the new Amero federal reserve bank to act freely for the benefit of the US economy. Decisions would be made slower than at present in order to assess their impacts on Mexico and Canada.

It is not clear that the benefits of the Amero to the US economy would outweigh its detractions. From an image perspective, the Amero would connote a unified North America. However, from an actual level of impact perspective on stabilizing the value of the American currency, it should not be expected to have anything near the impact of the Euro in Europe. The U.S. dollar already has top level international credibility on its own, so why would America want to take on the need to coordinate economic policy with two other nations, regardless of the extent to the coordination.

So what's in it for America to consider changing our world reknown currency's name (US Dollar) to the Amero and have to coordinate monetarist policy with Canada and Mexico. If the 3 countries were to unify, at least there might be new business opportunities for American businesses in Canada and Mexico.

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