The Internet has been abuzz lately about a proposed new currency, the "Amero," which would replace the dollar to become the currency of Canada, Mexico, and the US. It has largely been written off as a conspiracy theory, but there’s still room for speculation that an Amero currency could be in the works. Read on to get the lowdown on this funny money.
What is it?
The Amero would be a lot like the Euro, in that it would become the legal currency for members of a world region. Nearly all reports contend that it would be a mixture of the peso and both the American and Canadian dollars. Along with the amero would come a governing financial union, called the North American Union, which would manage the currency and possibly more.
The Case for the Amero
In 1999, Dr. Herbert Grubel wrote a piece entitled "The Case for the Amero." In this essay, Grubel describes a monetary arrangement between Canada, Mexico, and the US that would create the Amero, a North American Monetary Union, and a North American Central Bank. He asserts that trade between the three countries would be stimulated because the costs and risks of currency exchange would be eliminated. Unlike today’s reports, this piece assures readers that the monetary union would not threaten sovereignty or political independence.
Hal Turner, a talk radio host, has had a number of things to say about the amero. He believes that implementation of the currency is imminent and that production of coins is already underway. This belief is largely based on a tip he reports to have received from someone inside the US Treasury. This person sent photos of gold and silver Amero coins, and eventually sent Turner a 20 Amero coin from the US Mint in Denver. The story has been largely written off as a hoax, but Turner adamantly stands by it.
Although official production is debated, there are a few Amero coins already in circulation. Of course, they are not legal tender, but rather a coin design by seller Daniel Carr, a fantasy coin producer. In addition to the Amero, Carr sells concept President dollars, parody state quarters, and other funny money. He is the designer for the New York and Rhode Island state quarters that are in legal circulation today.
Benefits and Drawbacks
So what would the Amero mean for the US economy? These are a few of the positive and negative effects that could stem from the adoption of a North American currency.
Save on currency transactions: Dr. Herbert Grubel estimates that Canada alone would save $3 billion from the Amero’s implementation.
Printing inflation would be more difficult: There is large criticism of the Federal Reserve’s practice of printing dollars to pay debts and obligations, which causes the dollar to lose value. With a monetary union, the US would, one assumes, be held accountable by Mexico and Canada, and less free to continue this sort of practice.
Transition risks: The worldwide transition from the dollar to Amero could risk the dollar/Amero’s status as a global currency, which may cause foreign investors to shift to the more established euro and yen.
Same problems: The amero largely does not address problems that currently exist with the dollar, like trade deficits, government debt, and status as a fiat currency.
Shared seignorage: The US currently collects net revenue from issuing the dollar, but with the Amero, any revenues would likely be shared with Canada and Mexico.
Dollar fall: The Canadian and US dollars are worth considerably more than Mexico’s troubled peso. A merging of the three currencies could result in a fall of both dollars to meet the peso.
What to expect
Forex traders have good reason to track the validity of the Amero because it has the potential to strongly affect the currency trading market. We’d lose the dollar and the pool of tradeable currencies would shrink by two. Additionally, with the introduction of the Amero, we could see a worldwide trend of consolidating currency. Europe already has the euro, and other world regions may follow suit.
It is also important to remember that the dollar is used in a number of the world’s exports. For some, a transition to the amero could prove too risky and troublesome, causing a shift away from using American currency in this way. Even if the Amero comes out strong, the benefits of its use will be shared by all of North America, not just the United States.
Most importantly, the introduction of the Amero could create hard-to-predict fluctuations in the value of American currency. On one hand, teaming up with Canada and Mexico could prove to create a stronger competitor against the euro. Of course, worldwide uncertainty against the amero could cause a fall in North American currency value and a rally towards the euro or yen.