The 51st state?
Trump floats ideas to see the reaction. Testing the market for new products or services by entrepreneurs is as old as Capitalism. Trump’s “market survey” on annexing Canada was revealing.
Hockey Kevin speaks out.
An old hockey buddy of mine spoke excitedly today about the potential advantages of converting Canada to the USD without actually joining the USA. When I got home, I asked GROK-3:
If Canada were to adopt the American dollar (USD) as its official currency, replacing the Canadian dollar (CAD), there would be a mix of advantages and disadvantages for Canadian citizens. This process, known as “dollarization,” would have significant economic, political, and social implications. Here’s a breakdown:
Advantages
Reduced Transaction Costs: Canadian citizens and businesses would no longer need to exchange CAD for USD when trading with the United States, Canada’s largest trading partner (accounting for over 75% of its exports). This would lower currency exchange fees and simplify cross-border commerce.
Price Stability: The USD is managed by the U.S. Federal Reserve, which has a strong track record of maintaining relatively low inflation. Canadians could benefit from reduced uncertainty about currency value fluctuations, especially compared to periods when the CAD has weakened.
Increased Foreign Investment: Adopting the USD might make Canada more attractive to American and international investors, as it eliminates exchange rate risk. This could boost capital inflows, potentially spurring economic growth.
Simplified Travel and Spending: For Canadian citizens traveling to or shopping from the U.S., using the same currency would eliminate the hassle and cost of conversion, making cross-border activities more seamless.
Stronger Economic Integration: With the U.S. and Canada already linked through trade agreements like the USMCA, adopting the USD could deepen economic ties, potentially benefiting industries reliant on American markets.
Disadvantages
Loss of Monetary Policy Control: Canada would forfeit control over its own interest rates and money supply, as these would be dictated by the U.S. Federal Reserve. The Fed prioritizes U.S. economic conditions, which might not align with Canada’s needs—e.g., during a recession unique to Canada, it couldn’t lower rates or devalue its currency to stimulate growth.
Economic Vulnerability: Canada’s economy, heavily tied to commodities like oil and lumber, often diverges from the U.S.’s more diversified economy. A strong USD could hurt Canadian exporters if it doesn’t reflect Canada’s economic cycles, making goods more expensive abroad.
Loss of Seigniorage: The Canadian government earns revenue from issuing its own currency (seigniorage). Adopting the USD would transfer this profit to the U.S., reducing national income.
Cultural and Sovereignty Concerns: The Canadian dollar is a symbol of national identity. Replacing it with the USD might be seen as a loss of sovereignty, potentially sparking public backlash despite economic benefits.
Adjustment Costs: Transitioning to the USD would involve significant logistical challenges—replacing ATMs, updating pricing systems, and educating the public. Small businesses and low-income citizens might struggle with these changes.
No Lender of Last Resort: Without its own central bank, Canada couldn’t print money to bail out its financial system in a crisis, increasing reliance on international support or U.S. goodwill.
Broader Implications for Citizens
Winners: Exporters to the U.S., frequent cross-border shoppers, and investors might gain from stability and simplicity.
Losers: Workers in export industries sensitive to a strong USD (e.g., manufacturing, agriculture) and those reliant on government spending (which could shrink without seigniorage) might suffer.
In practice, Canada’s economy is distinct enough from the U.S.’s that full dollarization could amplify regional disparities—like between resource-rich provinces and urban centers—while reducing the government’s ability to cushion economic shocks. Citizens would likely feel the trade-off between short-term convenience and long-term autonomy most acutely.
Tradeoffs.
No one can predict the future. All decisions have consequences, and they will likely vary from person to person.
I have never like collective decision-making. These unfortunately are the only kind that big government make. One-size-fits-all policy decisions are the easiest, and there is a knack to doing it well. Take taxation, for example.
The Art of Taxation.
The art of taxation is the ability to pluck as many feathers from the chicken as possible while incurring the least amount of squawking.
