Why the Canadian Dollar is not worth what it used to be

For years the Canadian Dollar was set at a fixed value against the US dollar, up until the mid 50's it was at $1.110 per US $1.   The Diefenbaker government in their wisdom revalued it to  $.92.5  per US $1 and in 1970 the Liberal government of Lester Pearson decided to let it float against the US $ and ever since we have lived in with a dollar that has been as low as $0.69 and as high as $1.10  with no real reason for the vast fluctuations.  Oh it is described y the odd economist as a phenomenon that is caused by the fact our economy is directly related to the price of oil.

To some extent that maybe correct, however the fact remains that we are a nation of 33 million people  spanning the second largest country in land mass in the world, living right next door to the largest world economy with 350 million residents.  We are the United States largest trading partner and our very economic existence is directly tied to their economy.  So why would we not fix our dollar to theirs?  Doesn't it just make sense?

Another argument that is often posed is that having a dollar worth less than a dollar is good for exports, however it is also harmful to our ability to be competitive producers. It is far easier for companies to claim profitability because of a weak dollar than to pay attention and spending capital on research and development and improving productivity.  The reality is that if you have to compete on a level playing field you will either get better our you will cease to exist. Competition is good for everyone it leads to innovation and better efficiencies. Hiding behind a cheat dollar does not make our producers more efficient if anything it makes them weaker and susceptible to being driving from the market.

We also hear the suggestion that Americans will travel to Canada more readily if their dollar is worth more.  Right where do Canadians want to vacation? In Canada or in Mexico, Hawaii, Florida, California and Arizona, Americans are no different than us, they would much rather go somewhere warm as opposed to coming here.  Let's get serious and stop telling ourselves fairy tales, Canada is never going to be a tourist mecca, it is an interesting place to visit but does not rate high on many bucket lists.

You may recall that in 1987 Canada and the US signed a Free Trade Agreement, and in 1994 Mexico was added. The result of the NFTA was a significant increase in Canadian exports to the US, and then along came a weak dollar.  Since that slump exports have never reached the level they were, The NAFTA did not prevent a softwood lumber tariff being imposed by the US and 75% of our exports go to the US, ($300,000,000). Whether we like it or not our lives are governed by our relationship with our nearest neighbour to the south.  For that very reason alone it is high time we acknowledged our dependency and fixed our dollar to the US dollar,  it should be a par however $0.90 would be fine.

Would this be good for both economies? Yes there is no question both countries would benefit. Canadian companies would be slightly compensated for distance to market and the smaller employment base which impacts manufacturing industries and both economies would benefit from a stabler currency exchange.

Why is this not happening?  Probably because we Canadians just go along with whatever the government of the day puts forth, we are too complacent, we don't question why decisions are made nor do we stand up and shout out loud that this isn't working.

For over 100 years we have lived in peaceful coexistence with our neighbours, we give them hockey players, wheat, lumber and autos, they give us all the rest and a place to spend the winter where it's warmer.  However the fact remains we really are like a pimple on an elephant rear constantly concerned about being squashed when the elephant sits down.  Fixing the rate of the Canadian dollar at par  would go a long way to achieving parity in our relationship. It should never have been allowed to float in the first place. Some misconception that we would be able to take our place on the world stage if we behaved like the rest was probably the reason it was let go in 1970.

Maybe if we all got a little peeved at government and sent the PM an email stating our displeasure something might get done.