Question

"Should Canada, the United States, and Mexico adopt a common currency? Why or why not? Please discuss.

Answer 1

Balance of payments is like a financial report on the international trade which gives the insight on the financial status of the economy with respect to financial transactions. It is divided into current account, financial and capital account. Exchange rate is the rate at which currencies of two countries are traded with each other.

If the three countries M, C and U go for a common currency then they will no more have independent central banks and authority to have independent monetary policy. The currency of country U is already the leading currency in the world so they will dominate this new currency arrangement, which is not good for M and C as there economic condition is lower than that of U. So, the disadvantages here are more than advantages hence such an arrangement should not be formed.