Two years ago Gilles Duceppe, leader of the Quebec secessionist party Bloc Québécois, was calling for North American currency union:

"Do we really need the Canadian dollar?", Duceppe asked blue chip members of the Economic Club of Toronto. "We must ask ourselves: Are there still economic reasons justifying the existence of the Canadian currency?" Duceppe said "the instability of the Canadian dollar" over the years has been "considerably harmful" to things like trade.

Good questions. Currency union would make sense for Quebec as an accompaniment to independence, because Quebec would lack credibility issuing its own currency. A currency union would indeed promote cross-border trade and investment.

Last weekend Duceppe once again called for debate on the issue. He told reporters:

We've been demanding this debate in Ottawa, but they don't want it because of the symbolism of having the face of Elizabeth II on the Canadian dollar.”

Of course, Canada could adopt currency union while still retaining Elizabeth II’s face on its currency. Scotland and Northern Ireland have a currency union with England, but their own commercial banks issue the banknotes. If Canadian banks were allowed to, they could similarly issue US-dollar-denominated notes featuring any face their customers want: the Queen, hockey great Rocket Richard, mountie Dudley Do-Right. Plus, the seigniorage would then stay at home.

Duceppe blamed the instability of the Canadian dollar for the takeover of a Quebec forestry firm Domtar by the U. S. firm Weyerhauser. This may seem like protectionist nonsense, but he has a point: part of motive for merging the two firms might be to hedge the effect of C$-US$ exchange rate fluctuations. If Weyerhauser contracts to buy from Domtar at prices denominated in US$, one firm or the other loses when the exchange rate moves. A single balance sheet is a substitute for a single currency as a way of eliminating that risk.

Unfortunately, Duceppe misunderstood how the foreign exchange market clears:

“We have this ridiculous economic policy that when exports grow, the economy gets stronger and the value of our currency increases. Then exports decline and things get worse. It's always like a yo-yo," Mr. Duceppe said yesterday.

The actual sequence is: when demand for Candian exports grows, the demand for Canadian dollars grows, and so the value of the Canadian dollar increases, until exports stop growing and equilibrium is restored. It’s not like a yo-yo, it’s like a kaleidoscope after you turn it: everything falls into a new pattern.

Duceppe went on to give a self-contradictory argument for currency union:

A debate on monetary policy is needed, he said, because the Bank of Canada is so closely tied to U.S. Federal Reserve policies that it has lost its ability to influence independent economic policies at home.

If you want an independent monetary policy, then you don’t want currency union, which is the antithesis of monetary independence.