Discussion 4- Economics Assignment Example | Topics and Well Written Essays - 250 words

Discussion 4- Economics - Assignment Example According to Hugger (2008), the Optimum Currency Area (OCA) criteria can examine the feasibility of adopting a common currency by NAFTA (p. 23). Canada and Mexico have high levels of intra-regional trade and openness. According to OCA criteria, open economies reduce the costs of a common currency and reduce asymmetric shocks. From interest rate correlations, U.S-Canada monetary policies are similar. NAFTA countries are more similar in terms of GDP per capita growth, trade openness and tax to GDP ratios. Given all its benefits, a common currency is feasible for NAFTA. However, like the Euro, member countries must consider political reasons related to adopting a common currency. Theoretical threats of the Euro to the US Dollar in the international trade mean that a common monetary union in North America would allow the United States to compete on the same level ground with the Euro. Grubel (2000) points out that a single currency in North America would bring benefits to these countries in terms of reduced costs of foreign exchange, decreased interest rates and exchange rate risks. Reduced exchange rates would favor North America in facilitating and expanding international trade (p.