What seemed like a far-fetched idea with a decidedly European twist only
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
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
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
"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
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
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
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,
it might make more sense for South America's four-nation trade bloc,
Despite the obstacles, economists said an Americas currency bloc is an
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.