Wednesday, November 21, 2001
The Halifax Herald
What’s the Canadian dollar worth?
By Brian Lee Crowley
EVERYONE talking about the merits of adopting the U.S. dollar in the place of the Canuck buck does so in terms of Canada’s competitiveness. They’re not wrong to do so. But what they forget is something equally important: Our dollar’s relentless slide over the last 25 years has harmed the poorest and most vulnerable members of our society more than anyone else.
We should get a little less exercised about great symbols that are really of declining practical value, such as “sovereignty,” and worry a lot more about the escalating price we pay for being Canadian. It goes without saying that we should expect to make sacrifices in order to protect what and who we are. We have just marked Remembrance Day, when we stop and reflect on those Canadians who fought and died for this country, a necessary but tragic feat of honour and courage.
But that sacrifice had a purpose. It protected the traditions and institutions and way of life of Canada and the civilization of which we are a part against the threat of those who wanted to destroy them by force of arms. A sacrifice was needed; it was willingly given and Canadians are justly proud of that.
But what has our policy of a falling dollar got us? As Jeffrey Simpson pointed out recently in The Globe and Mail, the last time that the U.S. and Canadian dollars were at par was November 1976. Today, the loonie stands at a mere 63 cents or so, and tests new lows each week. This represents a very significant decline in our standard of living, because we either have to buy less from our U.S. neighbours, or else we have to pay more for the same things.
Remember when cross-border shopping was so huge? You had a better chance of seeing your neighbour on Saturday in a store just over the border than you did in the local Canadian Tire. Now the cross-border shoppers are Americans, who can’t believe what a bargain Canada is. And those cross-border shoppers are companies as well as individuals. That’s why, for example, for the first time in years, the Canadian oil patch is majority owned by Americans, not Canadians.
Think about that: The biggest beneficiaries of our low dollar are Americans. They’re not the only ones, of course, because Canada doesn’t need to adopt the U.S. dollar in order to realize many of the economic benefits of using our neighbour’s currency. Many of our largest companies now keep their books and price their products in U.S. dollars. This only makes sense: Many of their costs are in ever-cheaper Canadian dollars, while their income is in appreciating greenbacks. This is not greed, but rather self-protection. Companies that sell abroad are exposed to a very high risk that unfavourable exchange rate movements will damage their business. Since over 90 per cent of this country’s foreign trade is with the Americans, that means our economy is hugely exposed to currency risk in trying to sell into our biggest market. Doing business in U.S. dollars is a simple and elegant solution.
What’s true for companies is also true for individuals. High flyers in the corporate world are now demanding their salaries in U.S. dollars, or at the very least that their Canadian dollar salary be indexed to the greenback. Most people with an RRSP do everything they can to maximize the foreign content (read: U.S. investments), to get a piece of the U.S. dollar action. In the daily referendum on the loonie versus the greenback, more and more Canadians are voting Alan Greenspan.
As usual, the people who are least able to protect themselves from the consequences of our weak dollar policy are those with the least to begin with: the poor, those on fixed incomes, the unemployed. In a sense, the falling dollar is a kind of targeted inflation. Everything that is made in the U.S. is rising in price for Canadians, even though the U.S. dollar price may be stable, or even falling. When was the last time you could afford to buy clothes from the L.L. Bean catalogue, or drive to Maine for a Christmas shopping blowout?
Inflation always hurts the poor more than anybody else. That’s why a recent World Bank paper called low inflation a “super pro-poor” policy. The sliding value of our currency is a targeted inflation that is relatively easy for the well-off to avoid, while it restricts choices and undermines quality of life for the least well off.
Whether or not to have a Canadian dollar is something that should be judged on the benefits it creates for Canadians compared to the alternatives. Those benefits are slowly disappearing and being replaced by costs. If we do not change course, at some point Canadians will conclude, reluctantly, that the costs have become too high.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: [email protected]