The Canadian and US dollars are trading at parity, bringing full circle a cycle that lasted almost 31 years. Back in 1977, I won a $100 (US) bet with a Canadian on whether the C$ would see $1.1o or parity first (Guess what side I picked; if I had only invested that money in Microsoft, Intel, Google, etc.). Now that we are back to this level, I'd like to propose something quasi-radical, a US-Canadian dollar currency union.
Let's not make any mistake here. The reason the C$ has strengthened is the commodity boom. Canada is one of the largest exporters on raw commodities in the world. While they have always been a major commodity exporter, it is the mix of exports that has propelled it higher. Eighty dollar-a-barrel oil makes hard to produce Canadian oil profitable generating huge royalties for provinces involved and the national government, monies that weren't generated exporting wheat and nickel (Maybe diamonds. Watching Ice Road Truckers has led me to believe that companies must be making large profits, given the costs involved in production). These royalties have allowed Canada to post a record budget surplus, reducing the debt-to-GDP ratio by more than half over the past 11 years (Of course, if the US spent as little on defense as Canada, which spends somewhere around the amount that New York State spends, every citizen here would be getting a dividend check from the federal government).
Canada is a boom and bust economy. Currency union would force them to invest, in the good times , in businesses and technologies that would see them through the resource bust times. Historically, Canada has allowed the C$ to depreciate to be more export competitive. People seem to have forgotten that it was just over five years ago that the C$ traded at $1.60. Oil has been the great equalizer this time around, but I don't think Canadians want to go down the road Middle Eastern sheikdoms. Eventually, the oil party will end, either in lower prices, increasing use of substitutes, or a combination of both. It would help the US as well, as new legislation here would help reinforce monetary discipline, either through a merged or overriding central bank and create some fiscal discipline as well, as budget deficits would have to be restrained. I would even go farther as to invite other countries that have adopted the dollar around the world to at least have some observer status in the new central bank.
Parity just makes the mechanics easier, as well as making the explanation easier to all involved parties. It is a long-term positive for both countries.
PS: One line in the previous post shows the US$ fall vs. the C$ this year. Can you guess the other line?
3 comments:
You are corect that Canada is riding the oil wave right now, but Canada has never sought to diversify its economy. It revels in the belief that it holds the moral high ground and that is immune from capitalist and imperialist temptations.
It can do this because their large southern neighbor, the one that the liberals in Toronto and Ottawa love to deride, is responsible for the bulk of its foreign trade and for its, as you point out, its national defense. I like seeing parity as well. It takes away a the currency advantage and forces Canada to acknowleged that it is just like the rest of us.
Also, the Pennsylvania Army National Guard fields a complete mechanized infantry division, including several companies of M1A1 Abrams tanks. The PA Air Guard has a complete squadron of A10 attack jets. It is packs more firepower than all of the Canadian Forces.
If Pennslyvania still had its navy, it could launch an amphibious assault virtually unopposed across Lake Erie
We have a full-size replica of the Niagara in the water at Erie, PA. Batten down the hatches!!!
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