Any American who believes that a weaker currency is the key to a stronger economy ought to take a quick trip north of the border–and through the looking glass.
Because here in Canada, the overwhelming concern is precisely the opposite: That the nation`s currency is not strong enough.
Though Washington, along with the other affluent governments in the
”Group of Five,” brags about how its systematic interventions have helped push the U.S. dollar dramatically lower in the last 12 months, Ottawa is in terror that the same might happen to the Canadian dollar.
Here, near the snow-clad mountains of western Canada, the economy is reeling from a double whammy: Falling oil prices (critically important to the resource producers who dominate the region) and a falling Canadian dollar.
Countrywide, there is increasing consciousness of something that Jim Baker`s U.S. Treasury appears determined to ignore: A nation`s currency is not just a way of pricing its manufactured goods but an objective, instant rating of how the rest of the world perceives that country`s strength and future.
Canadians have discovered, sometimes angrily, that, as the influential MacLean`s magazine puts it: ”The country`s currency is a vital, valuable and powerful resource.”
Seeking to focus that anger and frustration, as the Canadian dollar plunged to less than 70 U.S. cents this month for the first time, many Canadians have targeted those ever-ready international bogeymen: Americans.
Arguing that villainous and heartless Americans are crushing Canada`s
”free and independent” status along with its buck, one columnist railed against ”nameless, faceless money traders . . . just south of the world`s longest undefended border.” (The Canadian Press reported from Toronto that Canada was increasingly angry at currency speculators in Chicago.)
Well, sorry, good neighbors and friends, blaming the currency markets for the condition of a nation`s currency may provide a convenient scapegoat for politicians, but in the real world it makes about as much sense as blaming the thermometer for the temperature.
In the short run, markets do go to irrational extremes. But as the last two decades have demonstrated unmistakably, countries that do the right things economically will have stronger currencies, and vice versa.
Those who pretend that differences between nations` currencies are primarily a function of, say, differing interest rates will be exposed every time. If higher interest rates were the key to a stronger currency, the most powerful currencies in western Europe would be the British pound and the Italian lira. If lower interest rates were the key to a weaker currency, the Swiss franc would be the continent`s patsy.
But Prime Minister Brian Mulroney`s Canadian government, for the moment, seems headed only for the usual palliatives: Seeking to intimidate speculators (by aggressive ”interventions” in the foreign-exchange markets, with the Bank of Canada spending vast amounts of other currencies to buy Canadian dollars) while bribing them (by raising Canadian interest rates steeply above American levels).
A little calm and a little perspective may help both countries.
The overriding reason for the decline of the Canadian dollar is the spectacular slide in world oil prices. Canada is perceived internationally as primarily a resource-based economy. Neither governmental gimmicks nor handy Americanophobia can make the realities of today`s petroleum disappear. (But politicians surely will try. The leader of Canada`s New Democrat Party is demanding that the government set a ”floor price” for domestic oil, a program whose logical leader would be King Canute.)
Also contributing to Canada`s currency weakness is a combination of impressions (a vacillating Mulroney government) and realities (balance of payment troubles and a significant outflow of capital, not just by dastardly Yanks but by worried Canadians).
Is the disease necessarily fatal? Certainly not. Canada`s nonoil economy appears headed for a pretty good year, and with the weaker dollar all Canadian products, including oil, become available at marked-down prices. The ultimate remedy lies in reversing the recent trend toward higher taxes and more-intrusive government. Canada`s potential is as enormous as its territory;
Canada is a bargain for Americans and a friendly lesson that the currency markets provide no panaceas in either direction.
