## Monetary and Exchange Rate Arrangements for Nafta

_IMF Working Papers, March 1, 1993_

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**Canonical URL:** [Monetary and Exchange Rate Arrangements for Nafta](https://www.imf.org/en/publications/wp/issues/2016/12/30/monetary-and-exchange-rate-arrangements-for-nafta-1035)

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## Bibliographic details
- Authors: Barry J. Eichengreen, Tamim Bayoumi
- Published: March 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451843804.001

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### Objective and scope
- Examines the extent to which the North American Free Trade Area (NAFTA) meets the criteria for a common currency area.
- Compares NAFTA with the European Community (EC), a regional grouping for which initial plans for a monetary union are already in place.
- Focuses on anticipated benefits and costs of monetary union and of abandoning independent exchange rate instruments.

### Key findings
- Most of the anticipated benefits from a monetary union in the EC apply with equal force to NAFTA.
- Because the underlying disturbances are more diverse across members of NAFTA, the costs of abandoning the exchange rate instrument are likely to be higher.
- The higher costs are particularly pronounced when NAFTA is compared to the EC’s continental core.

### Thematic emphasis and technical subjects
- Subject terms listed in the source:
  - Conventional peg
  - Economic integration
  - Economic theory
  - Exchange rates
  - Foreign exchange
  - Monetary unions
  - Supply shocks
- Keywords listed in the source include:
  - aggregate supply supply curve
  - Conventional peg
  - demand shock
  - EC member country
  - Europe
  - exchange rate uncertainty
  - Exchange rates
  - Monetary unions
  - North America
  - single currency
  - Southern Europe
  - supply and demand disturbance
  - supply curve
  - supply disturbance
  - Supply shocks
  - WP

### Implications and analytical conclusion
- NAFTA could capture similar benefits from monetary union as the EC, but asymmetric and more diverse disturbances among NAFTA members increase the potential costs of currency unification.
- Policy trade-off highlighted: potential integration benefits versus loss of exchange rate as an adjustment instrument given heterogeneous shocks.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/monetary-and-exchange-rate-arrangements-for-nafta-1035_