Currency Union

Currency Union

The North American Free Trade Agreement (NAFTA) is an agreement between Canada, Mexico and the United States which creates a trade bloc in North America. The goal of NAFTA was to eliminate barriers to trade and investment between these three countries. A major part of the agreement was the elimination of tariffs on more than one-half of Mexico’s exports to the US and more than one-third of the US’s exports to Mexico with goals to eliminate all tariffs in the future.

The Eurozone, also called the euro area, is a geographic and economic region that consists of seventeen countries of the European Union that have fully incorporated the euro as their national currency. It is one of the largest economic regions in the world and the euro is considered one of the most liquid currencies when compared to others. The currency is taking a more prominent position in the reserves of many central banks.

In order for the members of NAFTA to also have a currency union, each country would need to give up their current currency units and adopt a new one created specifically for this purpose. There are arguments for and against this concept. A major argument against a common currency is the lost of autonomy in the management of the currency, including setting interest rates. The differences in economic policy in these countries may make that challenging. A large concern is the different economic situations between the NAFTA countries. The Eurozone is comprised of similar service-based economies that have high public spending, and high taxes and wealth is created by the sale of goods and services. These similarities have a large impact on the success of the Euro. Countries that are ideal for a single currency are those that exhibit qualities of being economically, politically, and culturally linked. When examining the members of NAFTA, Mexico has an economy based mainly on agriculture, industry and manufacturing with a demand for free trade, the US has...