The currency [Canadian dollar] – which traded above its US counterpart for the second consecutive day on Wednesday after breaking through that threshold for the first time in seven weeks – will continue to ‘hover near parity’ next year, Canadian Manufacturers & Exporters said in a forecast to be released later this week. But while a strong loonie makes Canadian goods more expensive to foreign customers, it also gives Canadian companies better purchasing power in other countries. The report paints a picture of an export sector poised for double-digit growth….
Despite the predicted slowdown, ‘the companies that have survived are in a pretty good position to grow,’ Jay Myers, president and chief executive officer of CME, said in an interview.”
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Halley’s Comet has graced Canada’s night sky before. However, this may be the first time in Canada’s economic history that an Ontario-based industrial association has predicted both a 10 percent increase in export volumes for the new year and a Canadian dollar continuing to “hover near parity.” This moment shouldn’t be wasted by those who would consider—for the general good and for their own legitimate business and personal interests—the integration of our two currencies.
Canada’s post-war industrial economy was established when the Canadian dollar was at or above parity with the US dollar. However, since the dollar was significantly devalued almost exactly 50 years ago, Canadians have been taught to believe that Canada had to have a cheaper dollar than the Americans. Industry spokesman usually were the first to speak out against an “overpriced” Canadian dollar whenever it approached parity. With all our inborn disadvantages (great distances, long winters, and European social values, for instance), we couldn’t compete with a Canadian dollar much above 85 or 90 cents (US).
A majority of economists and nationalists universally embraced the promise of a low floating exchange rate. Theoretically, it would allow for a further measure of independence in the management of the Canadian economy. A lower dollar would better reflect our more generous social safety net, which burdened our businesses with higher taxes and payroll costs.
There is no single fact out there that, once exposed to the light of day, will silence these arguments and resolve that the standalone Canadian dollar is no longer good public policy. Changing circumstances, actual economic performance, and larger interests, however, are wearing down their authority.
Business taxes and social costs borne by Canadian manufacturers, in fact, are generally lower now than those borne by competitors in peer states. The dollar has been near par for three years and can’t be expected to float much below par in the next decade and, therefore, can’t be counted on to prop up weak Canadian businesses. However, its very existence as a sovereign floating currency—the possibility of disruptive volatility in both directions—is a subtle, pervasive dampener: Canadian firms haven’t sufficiently invested or reorganized to meet the competition with the zeal of their American counterparts.
The Free Trade Agreement of 1988 recognized what was happening: Canada and its regions were becoming economic regions within a steadily integrating North American economy. The shades of difference in growth rates, business activity, and demographic patterns today don’t justify two currencies anymore than, say, seven separate North American dollars.
Before we get any further in making the whole North American economy by truly opening the border and adopting one currency, there will be much public debate.
However, thanks to Canada’s economic performance and Jay Myers of the CME, the debate in Canada can no longer be blocked by the scary idea that—without a cheap dollar and overpriced imports—massive de-industrialization and job losses in Canada will be inevitable.