One stubborn obstacle in the way of thinking positively about European-style economic integration with the US has been the consensus in Ontario that a low Canadian dollar is necessary for Canada to compete—that it is a price all Canadians should pay for the country to be anything more than a resource exporter.
Business leaders, their economists, labor organizations and Ontario political parties have all preached against the vanity of a high dollar. Whenever the Canadian dollar approached parity with the US, Ontario spokespersons would urge the Bank of Canada to relax interest rates or would rail against the “artificiality” of a currency driven by Western Canadian energy exports.
This Ontario consensus, of course, inflated the paper earnings of exporters and deflated the purchasing power of everyone else. In addition, however, it shouldered out any broad discussion of the merits of creating, within one common market, a common Canada- US currency or even fixing the Canadian dollar at par with the US dollar.
While change is a subtle phenomenon in Ontario, it now seems pretty well official that Ontario is willing to live with a strong currency and isn’t going to lobby for—or wait for—another deep devaluation of the Canadian dollar. Dwight Duncan, the Ontario Minister of Finance said this in his pre-election Budget Speech:
“In recent weeks, the earthquake in Japan and political volatility in North Africa and the Middle East have created more uncertainty in the global recovery.
A strong Canadian dollar has posed a problem for our manufacturers and they are responding.
Ontario exporters are becoming more innovative and merchandise exports rose by 16 per cent last year — supported by an increase in total manufacturing sales of over 11 per cent in 2010.
For most of the last year, the Canadian dollar has hovered around par. When Duncan gave his budget speech on Wednesday, the Canadian dollar was floating above $1.02 US. On similar occasions in the political and business cycle of Ontario, Ontario’s Minister of Finance would be calling for redress, warning that wrong-headed national policies and callow money traders were threatening the heartland of Confederation.
Protectionists will continue to look for other ways to “protect” Canadian jobs. (Government procurement preferences for local suppliers are still popular in Ontario.) However, Ontario, it seems, has surrendered the claim that a low Canadian dollar to protect less competitive industries is necessary and in the public interest.
Ontario and its best industries will soon have legitimate concerns if the Canadian dollar starts trading up to $1.08 or $1.10 US. Nevertheless, abandoning the notion that the Canadian dollar should naturally float well below the US dollar frees everyone to consider ways to ensure greater currency stability—not just a “competitive” dollar for the Canadian side of the border. The gains for Canadian sovereignty and the costs to Canadian businesses and consumers of having the dollar floating freely—and unpredictably—deserve greater public discussion.
If Canadians could shake off their complacency, they could have a genuine debate about whether a formal currency arrangement with the US should be the next big step in integrating our two national economies.