As Wexit-themed events continue to attract thousands of people across Alberta, tough questions are being asked of those who believe the province would be better off as a sovereign country. One of those questions is what an independent Alberta might do about currency.
CBC News reporter Drew Anderson wrote that “When pressed on tying a new currency to the wild price swings of Alberta’s natural resources, [Wexit founder Peter Downing] says ‘having paper that’s backed up by nothing creates uncertainty, too.’”
In the age of competing borderless crypto-currencies, Anderson is implying that currency is an intractable impediment to Alberta independence. Okay, boomer.
Downing’s concerns about “paper that’s backed up by nothing” are supported by a Bank of Canada report showing that “Inflation erodes the purchasing power of money. Even with a low annual inflation rate of two per cent (the midpoint of the Bank of Canada’s target range for inflation since 1995), a dollar will lose half of its purchasing power in approximately 35 years.” This means that over a lifetime of saving for retirement, the value of any Canadian retirement fund is worth about half of what it might otherwise be worth without this inflationary monetary policy.
The Canadian dollar is backed by the strength of the Canadian economy and is already subject in part to the “wild price swings of Alberta’s natural resources.”
So why the snark from the CBC?
How well would an Alberta dollar perform? It’s a complicated question that requires a fair amount of speculation to answer. What we do know is that an independent Alberta would have a massive current account surplus as a result of energy and agriculture exports – and nothing pleases global currency traders more than this kind of scenario. Canada, by comparison, runs a current account deficit.
While Downing and his Wexit group support the idea of creating an Alberta petro-dollar, a new official currency may not be required of an independent Alberta – or even preferred.
An independent Alberta could chose to continue with the Canadian dollar in order to make the transition from province to nation less disruptive for businesses and consumers. In an interview with the Western Standard, Steve Horwitz, Distinguished Professor of Free Enterprise at Ball State University, said:
“In the debate over secession, concerns about Alberta adopting the Canadian dollar should be minor at best. Should Alberta secede, both Canada and Alberta would have an interest in Alberta adopting the Canadian dollar as its official currency.”
This type of arrangement is not without precedent. “We have examples from around the world of independent countries adopting the currency of another country as its own and those arrangements largely work well,” said Horwitz.
The US dollar is not only the preferred currency for business transactions in many nations, it is also the officially recognized currency of about a dozen foreign countries.
Adopting the currency of another nation – either the Canadian or US dollar – would be an option for an independent Alberta, but one that would require the new nation to give up control over monetary policy. According to Horwitz, that may not be a bad thing: “Well you can’t inflate to pay off debt, but I think that’s a good thing.”
While it may be in Canada’s interests to allow the oil-rich nation of Alberta to continue to use the Canadian dollar should independence occur, the federal government rarely acts in the national interest and diplomatic tensions between Canada and Alberta could prevent this from happening. Or maybe not.
“I don’t think they could prevent it,” said Horwitz.
Global currency markets and an international network of financial institutions allow people to trade in almost any currency they want – and there is little Canada can do about this even if it was inclined to be heavy-handed with breakaway nations.
Ideas for a currency solution in a post-colonial Alberta run the gamut from practical to fantastic: keep the Canadian dollar, adopt the US dollar, create an Alberta dollar, adopt a gold standard, allow banks to issue competing currencies, adopt one of many crypto-currencies. The options are vast.
But critics of Alberta’s sovereigntist movement are not interested in solutions to the challenges of independence. Government scribes at the CBC would rather sneer at the idea that independence is a viable option for the province.