Now at first blush that sounds great - winter trips to Florida will be cheap.
The trouble is summer trips to Ottawa will be expensive for Americans.
More important, Canadian manufactured goods will be expensive, and their day to day price uncertain, for US customers.
Trade with the US is vastly important to Canada's economy.
In January of this year Canada exported $US 24,358,000,000.00 of goods and services to the US (http://www.census.gov/foreign-trade/balance/c1220.html#2011). (That number is not a typo -- and it's for one month).
A slight change in the exchange rate can have a huge impact on Canad's economy.
What is to be done? Linking the Canadian Dollar to the US Dollar directly would make us hostage to American fiscal policy (which has not always been prudent) besides creating a significant soverienty issue. In the 1960s for an eight-year period we again fixed our currency to the U.S. Dollar; ultimately it caused major problems that could not be dealt with using a fixed exchange rate. There was upward pressure on the Canadian dollar and a rapid buildup of international reserves. This pressure came from high commodity prices, renewed capital inflows, and strong foreign demand for Canadian goods. A floating Canadian Dollar makes economic sense -- but the float must reflect the US as our biggest trading partner.
5 comments:
It would also make us hostage to US monetary policy, ask Ireland and Greece how they liked that.
The LPC have an opportunity to use the high ccy to reinforce the fact that Canada suffers a productivity problem.
Corp. tax cuts won't create new jobs, it just results in greater profits for corps.
The LPC should be developing programs for R&D tax credits that are directly tied to capital investments and investments in initiatives that will increase producitity.
A high dollar allows business to more cheaply buy machinery that will help their businesses.
If those initiatives create sustainable employment in manufacturing, the gov't should participat to help those businesses create jobs.
The U.S. is on the verge of a currency and debt crisis. Cutting all discretionary expenditures including the military will still not balance their budget, they are past the point of no return.
The choice is to keep borrowing from a market getting skidish about T bills or massive monetary inflation and devaluation. We must find solutions that do not include taking the Canadian dollar into a similar death spiral, which will destroy the value of those rational citizens who actually save.
Anon is correct tax cuts will not do this, investment credits, $ for robotics, and expansions away from our traditional, but inconveniently bankrupt neighbour.
For so long the cheap $ was acting as a subsidy for inefficient Canadian producers. The higher $ will force the innovative ones to be lean, and efficient, to compete, and force out inefficient ones, and in the long run will benefit Canada.
The above is taught by Walid Hejazi, Rotman.
Re: What can be done...
Put the clamps on new Tar Sands development and clean up the mess.
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