ABSTRACT

The formation of a currency union requires that members give over control of monetary policy to a single, common authority and, in exchange, members share in the benefits of a common currency. In the case of Canada’s currency union, control of monetary policy lies with the Bank of Canada; for countries participating in the relatively young EMU, the responsibility for monetary policy has shifted from national central banks to the European Central Bank. To support their respective currency unions, Canada and the EMU have adopted different fiscal institutions. In particular, fiscal transfers in Canada, large by international standards and an integral feature of Canada’s model of fiscal federalism, are comparatively small in the European Union. The EMU has instead adopted a policy of tight fiscal rules to which no formal equivalent exists in Canada.