Wednesday, December 5, 2007

Carney Gets It Right


It would be a "mistake" to peg the Canadian dollar to the U.S. dollar, according to the incoming Bank of Canada governor, Mark Carney.

Carney told a parliamentary committee Wednesday that it's not surprising there are calls to adopt a fixed exchange rate, given the loonie's recent volatility.

"In my opinion, it would be a mistake to do so," he told members of the House of Commons finance committee.

"It would mean that, de facto, Canada would adopt U.S. monetary policy, despite the reality that the structures of our economies are very different and, as a consequence, often require different types of adjustments in response to global developments," he said.

Carney said floating exchange rates make it easier to adjust to global economic forces.

"A floating exchange rate helps to smooth that process and to minimize the adjustments in other areas of the economy."

-Get the full version here

--Personally I would replace the words "global economic forces" with rapid changes in energy prices. Though, "global economic forces" sounds a lot cooler. Canada was one of the first countries to adopt a floating exchange rate system and there was a reason for it. Canada's economy is very different from the US in that Canada mainly exports commodities while the United States exports highly refined goods. Exporting commodities makes the economy very venerable, and a floating exchange rate helps to mitigates that venerability.

No comments: