The merit of a Canada-US monetary union

Institutions of a monetary union are described. The union leaves unchanged countries’ international competitiveness and national real incomes. Static gains arise from lower interest rates in Canada and Mexico because national monetary and exchange rate instability are eliminated. There will be lower costs of foreign exchange transactions. Dynamic gains arise in the form of greater labor market discipline, better signals about developing comparative advantage and higher economic growth. Traditional criteria for the optimality of monetary union are considered irrelevant because they rely on economic characteristics, which are endogenous to the monetary system in operation.