Saturday, May 05, 2007

If It Ain't Broke

Don't fix it...See Forward To The Past

Dollar rise has helped Canada growth, inflation: Dodge

The rise in the Canadian dollar in recent years has helped Canada maintain stable growth and inflation as commodity prices rose sharply, Bank of Canada Governor David Dodge said on Friday.

Dodge made no comment on the most recent spurt in the Canadian currency or on the economic outlook but extolled the virtues of a floating exchange rate, which he says can help absorb shocks without costing jobs and output.

"In recent years, the demand for and the prices of Canadian commodity exports have been rising sharply. This has helped to create an economic boom, and investment flows into Canada have increased. Our floating dollar has appreciated sharply and thus has forced some necessary adjustments," he said.

High dollar woes worth it, Dodge says

Canada converted to a floating exchange rate in the 1950s, but until about 10 years ago the Bank of Canada occasionally intervened by buying and selling dollars to smooth out sharp fluctuations.

Officials were right to cease their interventions in 1998, Dodge said, adding he has seen no exceptional circumstances since that have warranted a change in policy.

"There's absolutely no thought on our part of reversing that decision and markets I think are pretty sophisticated, pretty deep and do a pretty good job," Dodge said in response to a question from conference delegates.

Dodge conceded that the loonie's 35 per cent appreciation against the U.S. dollar since 2003 has been hard for businesses, particularly manufacturers whose exports into the United States have risen in price and hence become less competitive.

"Yes it's very tough for the manufacturers here in this city of Montreal right now. Strong global competition and an exchange rate that has appreciated very substantially but they are making those adjustments."

Earlier this week, Dodge told two separate parliamentary committees that it would be wrong to rein in the loonie because its recent rise to above 90 cents (U.S.) reflects the fundamental strength of the Canadian economy and is not due to speculation.

Returning to the theme Friday, he said the loonie's strength has helped the Canadian economy adjust to the boom in Canada's commodities producing sector as a result of sky-high global demand and prices for commodities such as oil and minerals.

Citing another example, Dodge said having a flexible exchange rate helped Canada through the 1997 Asian crisis, explaining that the loonie's sharp decline helped absorb some of the shock felt by the commodities sector when global prices plunged.

Find blog posts, photos, events and more off-site about:
, , , , , , , ,,, ,

No comments: