Let’s agree that after 45 years of official
indifference it’s time for our elected representatives and their agent—the Bank of Canada—to acknowledge that the dollar’s exchange price is a
public responsibility, not strictly a market responsibility. It’s time they set
aside some of their busy, busy work for a big-policy deliberation. It being 2016,
however, we can’t just leave them free and naked to think on their own.
After decades of official silence, what might the
government say about the dollar’s value? In the spirit of incrementalism, here
are three positions of escalating significance and consequence. All would aim
to influence the government’s overall fiscal and monetary choices, how we and the
market judge those choices.
Hopefully, they would enhance our credibility and bolster
our purchasing power on this continent and globally:
1. Make a ‘Strong Dollar’
Declaration of Intent:
This would go well beyond in-camera meetings with
government officials and public lectures by retired bank governor David Dodge. New
York, London and Davos bankers wouldn’t be the primary audience. Canadians
would be told that the bank governor, the PM and the minister of finance
declare that their policies and economic vision will support a strong dollar, not
rely on a cheap one.
Along with full employment, structurally balanced
budgets and stable prices, the government would accept that a stronger dollar
must also be a public objective. A stronger dollar would be a tangible
benchmark for consideration in the next election, as well as a benchmark in the bank governor’s and economic minister’s performance contracts. If Poloz isn’t enthusiastic, someone else should
have the job.
2. Pick a Number between 80
and 85 cents:
Instead of holding interest rates below those set by
the US Federal Reserve, the Bank of Canada could intervene to hurry up the
dollar’s recovery. Going back to at least 80 to 85 cents against the US dollar
would provide immediate relief to consumers and place a transparent government
performance test on the table. Those economists who so blithely argue that we
can carry a $30-billion federal deficit should agree that the bank has the
resources and credibility to defend a modest exchange rate target. It was pegged
at 92.5+/-cents through the ’60s when the Pearson Government created the CPP
and Medicare, and negotiated the popular free trade Auto Pact with the US.
A value of 85 cents US would be a stretch for our least-cost-competitive industries. It would say, effectively, that if you can’t adjust,
get into another line of business; ask for help, if need be, but stop expecting
everyone else to stay 30% poorer. The bank would only have to intervene
significantly in the currency markets if the government failed to secure the
public and the market’s trust that it can govern within its means.
3. Make Getting Back to Parity
a Medium-Term Objective:
The basic factors of production up here—worker skills, population age, public infrastructure,
access to money, reputation for competent public administration and respect for
individuals and property, urban density and global brand—make our growing-increasingly-diversified regions competitive
with America’s own regional champions.
There is no security or excuse for perpetuating, as
public policy, a currency below par. As they say: It’s not who we are.
All three
proposals I sketched out would aim to take advantage, not alter who we are: a
series of economic regions chasing the same material and social goals Janet
Yellen’s US Federal Reserve is trying to serve. Yes, Canadian monetary policy
(interest rates and money supply) and stabilization policy (government expenditures,
taxes and deficits) would have to be in harmony with Washington policy.
Acknowledging that would still allow us to debate the underlying issue: Do we maximize who we
are now—a capitalist satellite of the US and its
Dream—or do we want to build another vision, be a
more centralized social democracy or good ol’ fashion isolation.
But the status quo deserves better than a 70-cent
dollar.
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