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Mexico's Ortiz says NAFTA dollarisation could work

PARIS, March 9 (Reuters) - Banco de Mexico Governor Guillermo Ortiz said on Thursday that while he did not support ``dollarisation'' across the Americas, making the U.S. dollar the common currency of the NAFTA trading bloc could work long-term.

``A unilateral dollar would be a bad idea yet if we think in the context of NAFTA (The North American Free Trade Agreement) ... maybe I could see this being a positive move, like in Europe,'' the central bank governor told a French Banking Association (AFB) conference.

``In Mexico the currency has a national symbolic value and giving it up would be a long process. But I think the benefits for NAFTA of an arrangement of some sort could be substantial in the long term,'' he said.

Mexico' free trade accord with the United States and Canada would be a key growth engine for the years ahead, he added.

Yet it had taken some 40 years for the European Union's single currency to go from conception to launch, he noted, and stressed that neither Canada nor Mexico would likely be ready to give up their national currencies for a long time.

The idea of emerging economies struggling with inflation ditching their currencies for the U.S. dollar has been widely discussed since Ecuador voted to adopt the dollar last week to help it out of its worst economic crisis in five decades. However, Ortiz said he believed Mexico's free-floating peso was serving well in bringing down the country's inflation rate, which he said was on track for a target 10 percent at the end of 2000 from a lofty 52 percent in 1995.

``The floating exchange rate has brought numerous benefits,'' he said, noting it had allowed Mexico to absorb shock financial crises in Asia and Russia without depleting foreign reserves.

Proponents of dollarisation say it could end Latin America's vicious cycle of inflation and poverty, lowering inflation and interest rates and bringing more trade and foreign investment.

But critics say dollarised countries would be over-dependent on U.S. monetary policy and would lose a vital symbol of national sovereignty.

Panama has used the dollar as its currency for nearly a century and Argentina's peso has been pegged one-to-one to the dollar since 1991.