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Dollarization in Canada: The Buck Stops There

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  • John Murray
  • James Powell
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    Abstract

    The sharp depreciation of the Canadian dollar and the successful launch of the euro have spawned an animated debate in Canada concerning the potential benefits of formally adopting the U.S. dollar as our national currency. Some observers have suggested that this debate is largely irrelevant, since the Canadian economy is already highly "dollarized." Canadian businesses and households, they assert, often use the U.S. dollar to perform standard money functions in preference to their own currency. Very little evidence has been advanced, however, to support these claims. The authors of this report examine the available data in an effort to overcome this informational deficiency and to draw some tentative conclusions about the extent to which Canada has already been informally dollarized. The evidence that they present suggests that many of the concerns (or hopes) that have been expressed about the imminent dollarization of the Canadian economy are misplaced. The Canadian dollar continues to be used as the principal unit of account, medium of exchange, and store of value within our borders, and there is no indication that dollarization is likely to take hold in the foreseeable future.

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    File URL: http://www.bankofcanada.ca/en/res/tr/2002/tr90.pdf
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    Bibliographic Info

    Paper provided by Bank of Canada in its series Technical Reports with number 90.

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    Length: 53 pages
    Date of creation: 2002
    Date of revision:
    Handle: RePEc:bca:bocatr:90

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    Related research

    Keywords: Exchange rate regimes;

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    References

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    1. Edgar L. Feige & Michael Faulend & Velimir Sonje & Vedran Sosic, 2001. "Currency Substitution, Unoffical Dollarization and Estimates of Foreign Currency Held Abroad: The Case of Croatia," International Finance 0106001, EconWPA.
    2. Bordo, Michael D & Choudhri, Ehsan U, 1982. "Currency Substitution and the Demand for Money: Some Evidence for Canada," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(1), pages 48-57, February.
    3. Sebastian Edwards & I. Igal Magendzo, 2002. "Dollarization and Economic Performance: What Do we Really Know?," Working Papers Central Bank of Chile 175, Central Bank of Chile.
    4. repec:fth:calaec:16-92 is not listed on IDEAS
    5. Murray, John, 1999. "Why Canada Needs a Flexible Exchange Rate," Working Papers 99-12, Bank of Canada.
    6. Cuddington, John T. & Cuddington, John T., 1983. "Currency substitution, capital mobility and money demand," Journal of International Money and Finance, Elsevier, vol. 2(2), pages 111-133, August.
    7. Paul R. Krugman, 1984. "The International Role of the Dollar: Theory and Prospect," NBER Chapters, in: Exchange Rate Theory and Practice, pages 261-278 National Bureau of Economic Research, Inc.
    8. Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.).
    9. Murray, John & Schembri, Lawrence & St-Amant, Pierre, 2003. "Revisiting the case for flexible exchange rates in North America," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 207-240, August.
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    Citations

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    Cited by:
    1. Liliane Karlinger, 2002. "The Impact of Common Currencies on Financial Markets: A Literature Review and Evidence from the Euro Area," Working Papers 02-35, Bank of Canada.
    2. Laidler, David, 2005. "Inflation targets versus international monetary integration: a Canadian perspective," Structural Change and Economic Dynamics, Elsevier, vol. 16(1), pages 35-64, March.
    3. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports 200, Federal Reserve Bank of New York.
    4. Kamps, Annette, 2006. "The euro as invoicing currency in international trade," Working Paper Series 0665, European Central Bank.

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