Alberta separation and currency

A country can use another country's currency without permission, as Ecuador and Panama do with the US dollar. What it cannot do unilaterally is get a seat at the central bank, a voice in monetary policymonetary policy, or a lender of last resortlender of last resort. When Quebec's Parti Quebecois proposed keeping the dollar, even its own leader conceded Canada's monetary policy would simply apply and a Bank of CanadaBank of Canada seat was not guaranteed. So the claim that there is no downside is misleading: the trade-offs are real, even if their size is debated.

Modern currencies hold their value through institutional credibility, not commodity backing. Central banks and economists are nearly unanimous against tying a currency to gold, because it does not guarantee economic stability, the supply of gold is not fixed, and larger gold producers end up with influence over monetary policymonetary policy. Backing money with oil that is still in the ground does not work either, since that oil cannot be redeemed on demand. A new Alberta currency would also give up the Bank of CanadaBank of Canada's role as lender of last resortlender of last resort, the capacity to create domestic-currency liquidity and stabilize the financial system in a crisis, and would have to build that institutional credibility from scratch. The proposal confuses resource wealth with monetary capacity.

A country can adopt the US dollar without anyone's permission, so in that narrow sense the claim is true. What it leaves out is the cost. Using another country's currency means giving up monetary policymonetary policy entirely: Alberta would have no central bank, no lender of last resortlender of last resort in a banking crisis, and no ability to set its own interest rates or cushion a downturn in oil prices. It would effectively import US monetary policy, which is set for the US economy rather than Alberta's. Economists who have reviewed separatist currency proposals say they understate these tradeoffs, which is why full dollarizationdollarization is usually adopted only by small economies with few other options.

This depends entirely on the currency choice, and the two are in tension. If Alberta kept using the Canadian dollar, as many separation plans propose, the Bank of CanadaBank of Canada would still set interest rates for its own purposes and Alberta would have no vote and no control. To actually run its own monetary policymonetary policy, Alberta would have to launch its own currency and central bank, build credibility from scratch, and give up the stability of the loonie, while facing higher borrowing costs during the transition. So a sovereign Alberta could in principle control its own interest rates, but only by taking on the very risks that the keep-the-loonie plans are designed to avoid.