Table of Contents

Monetary Integration and Dollarization

Monetary Integration and Dollarization

No Panacea

Edited by Matías Vernengo

This book deals with the economic consequences of monetary integration, which has long been dominated by the Optimal Currency Area (OCA) paradigm. In this model, money is perceived as having developed from a private sector cost minimization process to facilitate transactions. Not surprisingly, the book argues, the main advantage of monetary integration in the OCA context is the reduction of transaction costs, yet the validity of OCA to analyze processes of monetary integration seems to be limited at best.

Chapter 7: Float, Fix or Joint? The Options for Canadian Foreign Exchange Policy

Ronald G. Bodkin

Subjects: economics and finance, financial economics and regulation, international economics


7. Float, fix or join? The options for Canadian foreign exchange policy Ronald G. Bodkin Introduction After accepting this invitation to come speak to you good people on the subject of a choice of a foreign exchange rate regime for Canada, I was suddenly struck with a certain panic. After all, most of you have heard all (or at least most) of the arguments before. I felt a bit like Tommy Manville’s tenth wife: I know exactly what is that I am supposed to do. I simply don’t know how I am going to make it particularly exciting or even interesting! At this point, I was hit by a small inspiration. The thought occurred to me that perhaps some humour might alleviate this otherwise very serious subject that has been very much (too much?) in the news recently. I am reminded of the story told by my friend Al Harberger, which I collected during a sabbatical at UCLA in 1989. It seems that two Scotsmen, Ian and Sandy, balloonists, decided to set sail from their native Scotland. As their balloon drifted over the North Sea, following the prevailing easterly winds, fog set in and they couldn’t tell where they were. Finally, the fog lifted somewhat and the balloon began a descent towards a park, where, 100 yards below, they spotted two other men walking in the park. Finally, when the balloon came within hailing distance of the men on the ground, Ian decided to chance matters (he had no idea...

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