“The loonie requires urgent inaction” –Andrew Coyne, Maclean’s Nov. 9th issue.

“The loonie requires urgent inaction” –Andrew Coyne, Maclean’s Nov. 9th issue.

Andrew Coyne’s column is at once funny and serious. I am impressed with his polymathic ability to deal with complex and obtuse subjects, like the economy and monetary policy, as he does in your current issue. He manages to delineate the rather obscure subject of money in a simple and straight-forward way. Guess he comes by it honestly; his father was James Coyne, Governor of the Bank of Canada from 1957 to 1961.The C$ was worth as much as $1.14 in 1961, due mainly to heavy foreign investment in Canada, mainly by the US. This brought pressure on the Government from exporters to do something (Coyne’s “Do Something lobby”). Printing money would debase the currency, but would also be highly inflationary, so the Government chose to fix the dollar. Fixing the dollar’s value is called a peg. This was done by John Diefenbaker`s Government in 1961, to the chagrin and eventually demise of Andrew Coyne`s father, Bank of Canada governor James Coyne, who resigned that year. The dollar was initially pegged at 92 cents US (and given the facetious appellation Diefenbuck), but in the seventies, the peg became too expensive for the government to maintain (i.e. The Bank of Canada had to buy US dollars or treasury notes to relieve the pressure on the dollar), and we went to a more flexible, floating exchange rate (a managed rate, or `dirty float`).

There are always two sides to every coyne (pardon the pun). With a strong dollar, importers gain, and consumers are happy. Exporters are sad. At least in the short run. But, as Mr. Coyne points out; importers can buy productive inputs at a lower price abroad, and their lower costs will trickle down (at least theoretically) through the economy, and both consumers and producers will gain –in the long run. The reverse is true for a weak Canadian dollar. It is the frequent fluctuation in value that causes most stress, because it does not give the economy enough time to adjust. It also leaves room for speculators to play their arbitrage game, and further destabilise the currency.

Andrew Coyne is correct in saying that maintaining a fixed rate would negate the need for a C$. It would also emasculate the Bank of Canada and destroy Canadian independent (or rather, semi-independent) monetary policy. The best the Bank can do is to ``lean against the wind``; to smooth the vagaries of economic life, and minimize the stress caused by a fluctuating dollar value.