Yesterday, the First of July, was Canada Day.
Discussing the crisis in the Eurozone with some visiting Canadian relatives led to the question How stable is the Canadian currency union?
At first sight it seems to be much more stable than its European counterpart. The Canadian banking system is renowned for its solidness. It is dominated by five national banks that operate coast to coast, supervised by the much-admired Bank of Canada. There is a large national budget that includes important elements of inter-provincial fiscal equalization. Internal labour mobility is relatively high.
But on the other hand the provincial governments are not constrained in their borrowing, there are enormous differences between the economic structures of the provinces, and there is always the Quebec question.
In fact, to a surprising extent, the stability of the Canadian union appears to depend on the fact that, as the author of this article puts it,”there are no Greeces here”. He draws attention to flaws in the design of the Canadian currency union that could come home to roost some day.
7 replies on “Canada Day”
Canada is vulnerable to a province going bust but could not have a Greek-style crisis in the (solvent) banks. There is a banking union in Canada. .
Hopefully “the much-admired Bank of Canada” will never be run by the likes of Trichet. A competent central bank protects against a lot of ills.
Illinois is looking more and more like Greece. But, again, the notion of an Illini dollar is completely off the table.
The Canadian-born Robert Mundell, who received the Nobel award in economics for his work on the theory of optimal currency areas, expressed the view that it might be logical to have separate currencies for Eastern and Western Canada.
What about a Puerto Rican dollar?
In fact, in today’s (July 3rd) Financial Times Gillian Tett has an article
“Puerto Rico – the Greece in America’s back yard”
Professor Walsh, I’m a former student of yours, from ubd. Your class on irish economics, even you compared irish growth compared to the usd, if I remember correctly, Ireland would have ranked at 37 if it was an independent state of the USA?