Once again Canada is confronted by the problem of our overvalued dollar as it hovers at or above parity with the United States’ counterpart.
This is a situation that at various times has beset us for decades. It should be recognized that the Organization for Economic Cooperation and Development states that on purchasing power parity, our dollar should be worth US $0.81.
In the Diefenbaker era, when our dollar climbed to US $1.05, our economy turned sluggish; the principal cause was that expensive currency hampered our exports and drew in excessive imports.
In a major controversy triggered by the Bank of Canada Governor who later resigned, Prime Minister Diefenbaker devalued our dollar to US $0.925. That was greeted by derision and protests, but subsequently, our economy boomed and our trade balance strengthened remarkably.
Several years later our economy faltered and our dollar fell to just over US $0.62. Some bank economists then argued that we should peg our dollar to the U.S. opposite number forthwith before our dollar slumped further to 50 cents.
Yet our economy prospered and our dollar has been climbing ever since. Nowadays it generally is above or near parity with the U.S. greenback. The Leader of the Opposition Thomas Mulcair, has intervened in this matter by suggesting our currency has been pushed up by tar sands exports, thereby entailing adverse regional and sectoral side effects.
There obviously is a correlation between oil prices and exports and the level of our dollar; that is not the entire answer. Certainly, while oil exports are an important factor in our trade balance, still international trade deficits have climbed much more rapidly than the surge in oil exports.
Nevertheless, Mulcair’s musings suggest perhaps the tar sands sector has been primarily responsible for the strong Canadian dollar, and that possibly tar sands extraction should be checked. Of course tar sand exports have led to a flow of funds to Canada, but there is an obvious solution; one that does not require a curtailment of that key part of our economy.
Money resulting from our tar sands exports should be placed in offshore, sovereign funds. Norway, and to some extent Britain, have done this with the funds derived from their oil exports. This would eliminate any beliefs that the oil sands boom is responsible for the overvalued Canadian dollar.
All but forgotten in this matter is the foreign takeovers of our resource companies. Foreign money has poured in here, pushing up our currency. Certainly for reasons of maintaining our sovereignty and to stem the flow of money thereby involved, there simply must be more control of that; our independence literally is at stake – along with a stable dollar.