federalobserver.com
Canadians agonize over their falling currency
By DENEEN L. BROWN - Washington Post
TORONTO - Customers lining up at a downtown bank here have been ever more
grumpy in recent weeks as they exchanged Canadian dollars for U.S. dollars
to take on vacation in the United States - and each week got fewer U.S.
dollars in return. "Our dollar was starting to fall so low, our customers
started calling it the northern peso," said one bank manager, Aphroditi
Dremos. "They weren't happy. And there was a bit of resentment. Americans
have always joked about our money looking like Monopoly money because it's
so colorful. Now it's worth about nothing. Down there, they won't even take
a Canadian penny."
On Jan. 18, the Canadian dollar hit a record closing low of 62.02 U.S.
cents. As the currency, known here affectionately as the "loonie" for the
water bird that appears on dollar coins, continues its fall, more Canadians
are beginning to worry.
Some say they feel poorer because they cannot buy what they used to buy on
trips to the United States, and note that it's driving up the cost of
living at home by making imports more expensive.
Toronto resident Dianne Wright blames higher grocery bills on the loonie's
slump: "Everything is at least 15 cents or 20 cents more," she complained.
"What can we do?"
And as the loonie heads down, the ever-stronger greenback is helping U.S.
companies buy Canadian real estate and companies. This is creating worries
about an impact on Canadian sovereignty and, ultimately, Canadian identity.
Many export-oriented businesses like the loonie's weakened state, however,
because it makes their goods cheaper for foreign buyers, boosting sales.
The loonie's value - 62.52 U.S. cents on Friday - has prompted sharp
discussion about whether the government should intervene to prop it up. For
months, Prime Minister Jean Chretien had trumpeted a weak Canadian dollar
as good for exports and good for the economy.
This month, leaders began a campaign to talk up the weakened loonie in
international markets, sending a parade of financial leaders to Wall Street
and placing ads in U.S. newspapers promoting Canada as a place to do business.
The loonie has sunk so low that it "does not reflect the strength of the
Canadian economy," Chretien said during a news conference in Ottawa. "We
are the only country in the Western world that is still not in a deficit
position. We have a huge trade surplus, we have a balanced budget and we
are in a very good position."
David Dodge, governor of the Bank of Canada, said the government wants a
stronger dollar. "The recent depreciation is certainly not helpful to
economic confidence," Dodge said in a recent speech. But he refused to say
if the government would intervene in foreign exchange markets to try to
prop up the loonie.
No one can say for sure why Canada's currency has fallen so far. It was
worth more than a U.S. dollar in the 1970s, but had fallen to about 88
cents by the early 1990s before hitting its all-time low two weeks ago.
Some critics say past policies of the Bank of Canada led to an artificially
high value. Others blame Chretien's constant touting of the benefits of a
weak Canadian dollar.
Scott Brison, a member of Parliament and finance spokesman for the
Progressive Conservative Party, called on the ruling Liberal Party to boost
the dollar by reforming the tax system and reducing spending.
"The government has been on cruise control," Brison said. "The prime
minister has said repeatedly the low Canadian dollar is good for the
economy. The larger corollary of his argument is if we reduced the dollar
to zero, we would be the greatest export nation in the world. And that is
ludicrous."
The loonie's slump has reduced Canadians' standard of living, he said. "The
low dollar acts as a sort of fiscal prison, preventing many Canadians from
traveling to the U.S.," Brison said. "While Americans are getting richer,
Canadians are getting poorer."
Sovereignty fears
Other analysts point to a perceived surge in U.S. purchases of Canadian
institutions. Last fall, Burlington Resources of Houston paid $2.1 billion
for Canadian Hunter Exploration, one of the success stories of Canada's oil
business. Conoco Inc., also based in Houston, bought Gulf Canada Resources
last July in a deal then worth $4.5 billion. And Devon Energy Corp., based
in Oklahoma City, announced plans to buy Anderson Exploration.
More than 6,900 Canadian corporations were U.S.-owned in 2000, up from more
than 6,700 in 1998, according to Canadian government statistics.
Jeffrey Rubin, chief economist for Canadian Imperial Bank of Commerce, says
the real problem is the potential loss of "economic sovereignty"" in a
country where national identity rests heavily on being different from the
United States.
"What happens if the Canadian dollar declines to an even lower level of 55
cents?" Rubin asked. "Then we will find we are second-class citizens in a
seamless and integrated North American economy. One day we will wake up and
find our assets are worth one-half as much as we thought they were worth.
What is the point of monetary sovereignty if every year we will get poorer?"
A common currency?
Some economists said the economies of the United States and Canada, which
are each other's biggest trading partner, are so interdependent that it
makes sense for Canada to adopt the U.S. dollar. Trade would flow more
smoothly, they say, if exporters and importers didn't have to worry about
currency swings.
Canada pegged its dollar to its U.S. counterpart in the 1960s, with
disastrous political consequences. And some economists warn that Canada
could become another Argentina, where a decade-long peg of its currency to
the U.S. dollar helped bring an economic collapse.
One face-saving measure floated here would have Canada, Mexico and the
United States - all members of the North American Free Trade Agreement -
create a new common currency, similar to the euro, put into public use this
year by 12 European countries.
But many analysts dismiss that as pure fantasy. "There is no way the United
States would give up the U.S. dollar," said Peter Dungan, economics
professor at the University of Toronto. "There were reasons France and
Germany adopted a common currency. The only option for Canada is to
dollarize."
But most Canadians oppose it, Dungan said: "That includes the Bank of
Canada and the federal government."
"Canadians worry about identity ceaselessly," he said. "And to push onto
dollarization, everyone would say, "Oh, my God, we will end up joining the
United States.' That would set the cat among the pigeons." |
