In Brief: Canada-U.S. Currency Link Discouraged

Canada should not peg its currency to that of the United States despite Europe's success in introducing a common currency, the Royal Bank of Canada concluded in a study.

Over the past decade the Canadian dollar has steadily lost value in U.S. dollar terms. Had the currencies been linked, the study said, Canada would have had to raise rates.

"I predict, though I cannot prove it, that Canada today would be in a recession under such circumstances," Royal Bank chief economist John McCallum said in the study.

Had it pegged its currency to the U.S. dollar, he added, Canada would have suffered a double economic shock-from falling commodity prices and a strong currency.

And since inflation is more likely to accelerate in the United States than in Canada, linking the countries' economic policies would compromise Canada's low-inflation target, the report said.

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