** Fiscal dominance is the older concept of the two. Fiscal dominance would arise if the government financing constraint would become an overriding influence on monetary policy. The idea that tight monetary policy may become impossible without accompanying fiscal adjustment was well understood when the blueprints for the EMU were being prepared.
In one chapter, the parties are enjoined from manipulating their exchange rates to gain an unfair trade advantage. This is not a controversial issue for us. We have long relied on our marketdetermined flexible exchange rate to absorb external shocks and cushion the economy from their impact. This policy has served Canada well.