January 22, 1999
Idea of Americas-wide dollar bloc gains currency
                  WASHINGTON (Reuters) -- A single currency for the entire American

                  What seemed like a far-fetched idea with a decidedly European twist only a
                  few weeks ago is suddenly the topic du jour among economists, now that
                  Argentina is talking of abandoning its currency for the dollar.

                  Argentine officials have suggested their country could become the test case
                  for an eventual effort to create a dollar-zone throughout the continent.

                  Economists said Argentina would be the ideal place to start such an effort
                  since the country already has a one-to-one peg between its peso currency
                  and the dollar. As a practical matter, dollarization could be as simple as
                  loading greenbacks onto jetliners, although some key issues would need to
                  be worked out, such as which institution would serve as Argentina's lender
                  of last resort.

                  "If Argentina did it, it would break the ice for other countries," said Gary
                  Hufbauer, senior fellow at the American Enterprise Institute think tank.

                  Of course, adding economies as diverse as Brazil, Mexico and Canada to
                  the monetary mix would be a much more difficult feat. But European
                  monetary union did not happen overnight and economists acknowledge it
                  could take years or even decades to lay the groundwork for it in this

                  "There are lot of economic and political hurdles that would have to be
                  overcome before you could adopt a dollar-based system in the Americas,"
                  said Greg Mastel of the Economic Strategy Institute, a Washington think

                  Not least of the political obstacles is the sense of national pride many
                  countries attach to their currencies.

                  Just as many European countries were loath to allow Germany's
                  Bundesbank to call the shots for their economies' monetary policy, most
                  countries on this side of the Atlantic probably would be in no hurry to turn
                  over control of their interest rates to the Federal Reserve.

                  Nor would the Federal Reserve be anxious to broaden its monetary policy
                  goals beyond U.S. borders or give other countries some say in interest-rate

                  Still, economists said an Americas currency bloc is not without benefits,
                  especially for Latin American countries that have witnessed fierce attacks on
                  Brazil's currency that have led to a devastating hemorrhaging of capital out of
                  the country.

                  "Some countries may decide that surrendering sovereignty over their
                  currencies may be a fair trade-off to achieve stability," said Gordon
                  Richards, chief economist at the National Association of Manufacturers.

                  On the other hand, Harvard University's Alberto Alesina said that what may
                  make sense for Argentina and possibly some other countries would be
                  extremely difficult to put in place more broadly.

                  "I don't think every country has the choice of going to the dollar as a
                  currency," he said. "As a continent-wide process I don't see it as very

                  Alesina said the disparities among economies of the Americas are vastly
                  greater than those of 11 countries partaking in the euro. The Americas also
                  lack the history of conflict that drove Europe to start pursuing economic
                  cooperation in World War Two's aftermath.

                  Even implementing a currency bloc among the three countries comprising the
                  North American Free Trade Association-- Canada, Mexico and the United
                  States-- would be an enormous challenge, given the much lower standard of
                  living in Mexico compared to the two other countries.

                  Despite the close ties between Canada and the United States, a
                  controversial bill to protect Canadian magazines from American competition
                  highlights a sense that Canadians are far from ready to erase the economic
                  border to the south, said Tim O'Neill, chief economist at Harris Bank/Bank
                  of Montreal.

                  Barry Eichengreen of the University of California, Berkeley, said a NAFTA
                  currency zone might make sense if the North American countries move
                  toward even greater economic integration.

                  "Absent that, I don't think it is feasible or essential now," he said, adding that
                  it might make more sense for South America's four-nation trade bloc,

                  Despite the obstacles, economists said an Americas currency bloc is an idea
                  that will be discussed further.

                  "I wouldn't want to rule anything out," Mastel of the Economic Strategy
                  Institute said. "Twenty-five years ago would anyone have thought that
                  Europe would be able to come together on a single currency? Probably not."

                   Copyright 1999 Reuters.