Debate in Canada over joining the US dollar has intensified with the introduction of the euro across the Atlantic and the consolidation of trade relations with the US.

Although the debate remains largely limited to academics and economists, the advantages of dollarisation are becoming clearer as the North American Free Trade Agreement (NAFTA) - which clubs together Canada, the US and Mexico - approaches its tenth anniversary next year. Mexico joined in 1994.

Economists argue that currency union will improve efficiency in the Canadian economy and raise living standards.

"In Canada, the impetus comes from the efficiency gains and the productivity gains," says Andrew Pyle, an economist at Scotiabank in Toronto. "Canada has lagged the US in productivity growth for most of the last decade and I think currency union would address most of these issues."

Loss of monetary freedom

Equally though, pro-dollarisation economists recognise that the argument against joining is compelling. The loss of monetary freedom - as the US Federal Reserve would set interest rates - would remove a major instrument of economic policy from Canadian government hands.

External shocks, like the 1997 Asian currency crisis or the 1998 oil price collapse, would be harder to offset. The Canadian economy is heavily dependent on exports and international commodity prices. During the Asian and oil crises, the Canadian central bank was able to offset their negative impact by keeping interest rates low.