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What's this about 'funny money'?
Keeble McFarlane
Saturday, October 27, 2007
THERE'S something about a consumer uprising going on in Canada right now. Customers are demanding that merchants reduce the prices they charge for anything, from baby clothes, blue jeans, DVD players to the latest fancy SUV.
Nothing unusual about that, is there? Everybody wants lower prices, right? What's unusual about this particular phenomenon is the underlying cause: for the first time in more than 30 years, the Canadian dollar is worth more than its US counterpart.
A generation of Canadians has grown up knowing nothing more about their currency than that it was worth considerably less than that of the Goliath south of the border. They are accustomed to reading items in the newspaper where company reports are quoted in US dollars. They are used to seeing the prices of books and magazines listed as US$25, Can$32.50, or something like that.
As Internet shopping exploded, the frustration of the huge differences in prices grew, right in your face. And even though the cars sold in both countries are largely the same, the price differential can be enormous - generally thousands of dollars. But because the dollar had over the years slipped to a bottom of 62 US cents five years ago, most people sighed in resignation and just paid the higher price for the goods they had to buy.
The dollar began its slide in 1976, when the separatist Parti Québecois, led by René Lévesque, took power in Quebec and fears grew about the stability of Canada as a whole. At that time, too, federal government had fallen into the habit of running huge annual budget deficits, inflation was high, and the economy was sluggish.
The Liberals were in power in Ottawa those days, and even when the Conservatives took over the trend continued. Then along came Jean Chrétien with a renewed Liberal party in the 1990s, who, along with his finance minister, Paul Martin, broke the deficit cycle and ran a string of budget surpluses until Martin took over as prime minister and was soon defeated.
He was replaced by an arch-conservative, Steven Harper, who, while in opposition, had been highly critical of budget surpluses, claiming that taxes should be lower so that people could keep more of their money in their own pockets. But since his election a couple of years ago, Harper has not seriously attacked the tax regime, remaining content only to nibble away at selected portions of it to focus on this or that segment of the populace.
On September 20, the Canadian dollar achieved parity with the US greenback for the first time in 31 years, capping a 62% climb over the past five years. Ninety-six Canadian cents will now get you a US dollar, which is worth Can$1.03 and, according to financial experts, is likely to climb even further. Among the most actively traded world currencies, the Canadian dollar is the best performer against the US dollar because of the growing strength of its economy and the burgeoning prices for its commodity exports.
Canada has a strong industrial economy closely tied to the US, which is by far its biggest trading partner. It is also a prime source of primary products, such as petroleum, copper, gold, lumber and grain. While it has been experiencing steady and strong economic growth, its southern neighbour has seen some slippage in its economy in recent years.
Recently, the American credit system had had some difficulties, and the country has racked up an enormous deficit in its trade balance, particularly with China. The US buys huge quantities of goods from China - from food and toys, clothes and electronic goods to cars and aeroplane parts - and sells very little in return. It now holds something like $900 billion in a mix of US government bonds, and a total of more than US$1.33 trillion in reserves.
Some American politicians and commentators fear that China can use this enormous clout to retaliate against any American action it considers unfavourable. But it cuts both ways, as China would suffer just as much as the US if it injured that nation's economy.
Now, while it may feel good to Joe Canuck that his dollar is now stronger than the once mighty US buck, there are problems for Canada in this too. As the dollar strengthens, the cost of the goods it exports also rises, putting its manufacturers in a less favourable position against their competitors. Offsetting this is the reduced cost of its imports, much of which is priced in US dollars, but experts discount this as a major factor in the mix.
The government in Ottawa doesn't seem too perturbed by the development. The finance minister, Jim Flaherty, recently told merchants they should listen to their customers and adjust their prices accordingly. The head of the Bank of Canada merely advises caution, but doesn't appear about to cool the situation by adjusting the signature national bank rate, from which all the major businesses take their cue.
No doubt they too, like everyone else, need to get their heads around the intoxicating development. It does, indeed, take some time to absorb and digest these developments, so no doubt the stores will soon bring their prices in balance with those charged by their counterparts south of the border.
For generations, Americans have clung to their dowdy, mono-hued greenback, which outsiders have to scrutinise very closely to make sure they aren't getting a 10 instead of a 20. They have looked down on the multi-coloured Canadian notes with their landscape scenes and called them 'funny money', especially so when the Canuck buck was worth much less than theirs. Perhaps it's too soon for Canadians to crow over the misfortune which has befallen the greenback, but they can perhaps be excused if they do lapse into returning the discourtesy of the term 'funny money'.
keeble.mack@sympatico.ca
Keeble McFarlane
Saturday, October 27, 2007
THERE'S something about a consumer uprising going on in Canada right now. Customers are demanding that merchants reduce the prices they charge for anything, from baby clothes, blue jeans, DVD players to the latest fancy SUV.
Nothing unusual about that, is there? Everybody wants lower prices, right? What's unusual about this particular phenomenon is the underlying cause: for the first time in more than 30 years, the Canadian dollar is worth more than its US counterpart.
A generation of Canadians has grown up knowing nothing more about their currency than that it was worth considerably less than that of the Goliath south of the border. They are accustomed to reading items in the newspaper where company reports are quoted in US dollars. They are used to seeing the prices of books and magazines listed as US$25, Can$32.50, or something like that.
As Internet shopping exploded, the frustration of the huge differences in prices grew, right in your face. And even though the cars sold in both countries are largely the same, the price differential can be enormous - generally thousands of dollars. But because the dollar had over the years slipped to a bottom of 62 US cents five years ago, most people sighed in resignation and just paid the higher price for the goods they had to buy.
The dollar began its slide in 1976, when the separatist Parti Québecois, led by René Lévesque, took power in Quebec and fears grew about the stability of Canada as a whole. At that time, too, federal government had fallen into the habit of running huge annual budget deficits, inflation was high, and the economy was sluggish.
The Liberals were in power in Ottawa those days, and even when the Conservatives took over the trend continued. Then along came Jean Chrétien with a renewed Liberal party in the 1990s, who, along with his finance minister, Paul Martin, broke the deficit cycle and ran a string of budget surpluses until Martin took over as prime minister and was soon defeated.
He was replaced by an arch-conservative, Steven Harper, who, while in opposition, had been highly critical of budget surpluses, claiming that taxes should be lower so that people could keep more of their money in their own pockets. But since his election a couple of years ago, Harper has not seriously attacked the tax regime, remaining content only to nibble away at selected portions of it to focus on this or that segment of the populace.
On September 20, the Canadian dollar achieved parity with the US greenback for the first time in 31 years, capping a 62% climb over the past five years. Ninety-six Canadian cents will now get you a US dollar, which is worth Can$1.03 and, according to financial experts, is likely to climb even further. Among the most actively traded world currencies, the Canadian dollar is the best performer against the US dollar because of the growing strength of its economy and the burgeoning prices for its commodity exports.
Canada has a strong industrial economy closely tied to the US, which is by far its biggest trading partner. It is also a prime source of primary products, such as petroleum, copper, gold, lumber and grain. While it has been experiencing steady and strong economic growth, its southern neighbour has seen some slippage in its economy in recent years.
Recently, the American credit system had had some difficulties, and the country has racked up an enormous deficit in its trade balance, particularly with China. The US buys huge quantities of goods from China - from food and toys, clothes and electronic goods to cars and aeroplane parts - and sells very little in return. It now holds something like $900 billion in a mix of US government bonds, and a total of more than US$1.33 trillion in reserves.
Some American politicians and commentators fear that China can use this enormous clout to retaliate against any American action it considers unfavourable. But it cuts both ways, as China would suffer just as much as the US if it injured that nation's economy.
Now, while it may feel good to Joe Canuck that his dollar is now stronger than the once mighty US buck, there are problems for Canada in this too. As the dollar strengthens, the cost of the goods it exports also rises, putting its manufacturers in a less favourable position against their competitors. Offsetting this is the reduced cost of its imports, much of which is priced in US dollars, but experts discount this as a major factor in the mix.
The government in Ottawa doesn't seem too perturbed by the development. The finance minister, Jim Flaherty, recently told merchants they should listen to their customers and adjust their prices accordingly. The head of the Bank of Canada merely advises caution, but doesn't appear about to cool the situation by adjusting the signature national bank rate, from which all the major businesses take their cue.
No doubt they too, like everyone else, need to get their heads around the intoxicating development. It does, indeed, take some time to absorb and digest these developments, so no doubt the stores will soon bring their prices in balance with those charged by their counterparts south of the border.
For generations, Americans have clung to their dowdy, mono-hued greenback, which outsiders have to scrutinise very closely to make sure they aren't getting a 10 instead of a 20. They have looked down on the multi-coloured Canadian notes with their landscape scenes and called them 'funny money', especially so when the Canuck buck was worth much less than theirs. Perhaps it's too soon for Canadians to crow over the misfortune which has befallen the greenback, but they can perhaps be excused if they do lapse into returning the discourtesy of the term 'funny money'.
keeble.mack@sympatico.ca