Evaluating Monetary Policy

Eric Helleiner, Towards North American Monetary Union? The Politics and History of Canada’s Exchange Rate Regime (McGill-Queen’s University Press, 2006)

In his book Towards North American Monetary Union? The Politics and History of Canada’s Exchange Rate Regime, Eric Helleiner attempts to explain the historical significance of Canada`s monetary policies in contrast to the other countries. His arguments begin with the introduction of the Canadian dollar and interest rates, later moving towards the main focus of the book, the North American Monetary Union (NAMU). In the book he discusses Canada`s constant switching between a fixed and floating exchange rate. Floating exchange rates have the freedom to fluctuate while fixed rates would require the government to back its currency against the gold reserves, putting Canada’s national currency of equal value to their gold reserve. The idea of the development of the NAMU being inevitable is a belief shared by several economists. Helleiner attempts to take the opposing argument by focusing on the governmental issues that are involved in the exchange rate.

This review is set to critique Helleiner`s research and studies and strengths and weaknesses of Helleiner`s arguments. Helleiner starts his argument with the birth of the Canadian dollar in 1850. The idea is that the Canadian dollar was favored due to increases in trade with the US. The dilemma lay in the issue of creating a new currency to adapt to the trading environment with the US, to make trading easier and more measurable. By adapting a dollar, Canada would have to abandon the British sterling. The sterling also had its flaws in measurement, since its value varied from location to location. In 1853 Canada created its own currency after immense consideration towards the American dollar. After Confederation, the idea of a separate Canadian currency became more appealing as it would symbolize unity and independency. Depending on the strength of the...