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Common currency
Should we really be sharing our dollar?
You see the signs everywhere. Canadian manufacturing is slumping and the primary reason is the loonie’s recent strength vis-à-vis the American greenback. Statistics Canada released its February employment numbers a few weeks ago, and although 27,000 jobs were created in total, the number of people working in manufacturing slipped by 28,000.
The worse news is our currency’s strength hasn’t yet been fully felt in the critical automotive sector. Trust me. It will. The migration of work that came north can just as easily turn around. Many economists (I admit that I am one) believe that by the end of this decade, the Canadian dollar will trade at par or even at a premium to the American version.
Quite understandably, this has some constituencies worried. I predict that in the days ahead, the idea of “dollarization,” or a common North American currency, might gain popularity—and from unlikely sources. After all, it’s not as if the idea is unprecedented.
On January 1st, 2002, twelve European countries gave up their currency in favour of the Euro. The idea was to facilitate cooperation and herald in a whole new era of economic growth. But it hasn’t turned out that way. In 2002, 2003, and 2004, progress in the Euro region has badly lagged that of North America, and Japan as well!
Let me try to give the best reason I know why dollarization would be good for Canadian manufacturing specifically and business in general: It would eliminate one of the major uncertainties in the marketplace, and that is the relation between the Canadian and American dollars.
There has never been a developed country that has been as heavily reliant on one trading partner as Canada is with the US. Fully 87 per cent of our exports head south and 60 per cent of our imports originate in America. Given these ties, it could be logically argued that one currency would more easily facilitate the exchange of goods and services between the two nations.
On the other hand, you could also say we’re doing pretty good as is. This would be my argument. We know what’s required to grow per capita gross domestic product. A nation grows exactly to the extent that it works more productively and invests wisely in both human resources and machinery and equipment. This requires hard work, and there are no short cuts to success.
As the loonie soars, labour must be willing to make concessions to keep employment here. Management must continue to invest in new processes. And government must create a climate that encourages both parties to work to each other’s mutual benefit. Dollarization might make us feel like we’re doing something useful, but ultimately it’s a shell game at best.
Michael Hlinka provides daily business commentary to CBC Radio One and a bi-weekly column that is syndicated across the CBC network. In addition, he conducts financial planning courses.
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