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OTTAWA--A move is afoot here to replace the Canadian loonie with the American dollar, and the idea has significant backing in the media and banking industry, as well as guarded support from some in the government.
The Canadian dollar has gone from parity with its U.S. counterpart 40 years ago to being worth about 64 cents today. More than 80 percent of Canada's exports are sold in the United States, and tourist traffic by those living on both sides of the border is a significant factor in local economies as well.
Whether the greater integration of the U.S. and Canadian economies results in the adoption of the U.S. dollar, or whether a new common currency--similar to the Euro now in use by most Western European countries--is adopted, many Canadian financial analysts say the handwriting is on the wall.
"They're sensitizing people to the fact that somewhere down the road, there may be important implications arising from the defects of having a flexible exchange rate," highly respected Queens University economist Tom Courchene said recently. "Increasing the awareness of citizens to this issue brings it closer in time."
That view was bolstered by internal Bank of Canada documents obtained by media baron Conrad Black's national newspaper, The Standard, earlier this month.
An internal memo from James Powell, chief of the bank's international section, to Jean-Pierre Aubry, director of the bank's Montreal bureau, showed considerable support for the idea. "I also agree with your point that it is important for the bank to be open and willing to consider other exchange rate options," Powell wrote. "The line we have been taking here in International is that a common North American currency (or more likely dollarization with, hopefully, a Canadian seat in the Fed system) is not a wacky idea if the Canadian and U.S. economies become increasingly similar."
Pointing out that Panama uses the U.S. dollar as its currency but has no common political institutions with the United States, Powell downplayed what might be, politically, the most troubling aspect of the plan.
"Finally, I am not entirely convinced that monetary union necessarily implies a need for common political institutions," he wrote.
Revelations of the internal Bank of Canada documents come on the heels of a controversial report by Canada's TD Bank, which concluded that the only real alternative to the existing floating exchange rate would be the adoption of the U.S. dollar, or what is called dollarization.