Dollar story

>> Should Canada adopt the U.S. greenback?
by PHILIP PREVILLE

Two summers ago, international financial markets decided to take target practice on the Canadian dollar. For the first time ever, the loonie was worth less than 70 American pennies. Economists predicted disaster, while Prime Minister Jean Chrétien told the nation to relax because a low dollar was "good for tourism."

Two years later, the dollar has yet to claw its way back up to the 70-cent threshold. Now, some are proposing the monetary policy equivalent of the final solution: dissolve the Bank of Canada, padlock the doors on the Royal Canadian Mint in Winnipeg, and dig a grave for all the loonies in the land. Instead, they suggest, we should all be using the U.S. dollar.

Last Thursday, four of the pointiest heads in the land debated the proposal at a luncheon organized by the Montreal Chamber of Commerce. SECOR founder Marcel Coté and UQÀM economist Pierre Fortin said "yea" to the idea. Former Bank of Canada Governor John Crow and Royal Bank chief economist John McCallum said "nay."

As one luncheon participant pointed out, this was the third such debate in Montreal since April 1. And with the Bloc Québécois also in favour, it's an idea that has found a constituency of vocal supporters determined to put the issue on the political map.

Pants on fire

Last Thursday's debate offered a revision of an old cliché. There are lies, damn lies and economics.

"Between 1950 and 1990, interest rates, inflation and unemployment have always been lower in the United States than in Canada," said Fortin, blaming the loonie for most of Canada's economic ills.

McCallum, however, said the 68-cent dollar has saved Canada's economic hide. "When the Asian economic crisis hit two years ago, our dollar went down in value to absorb some of the shock," McCallum said. "That's what it's supposed to do. When our dollar goes down, our exports to the United States go up. Our economy's been booming ever since the Asian crisis."

Crow focused on more practical considerations. "If we tried to form a monetary union with the United States, we would have no bargaining power in those negotiations," he said. "Meanwhile, we would give up our central bank [the Bank of Canada]. We would lose what little leverage we have over our own economy, and we would lose our lender of last resort."

Who cares?

McCallum later told the Mirror that the idea is a non-starter, the pet project of a small but vocal minority. "The business community isn't pushing this idea," he said. "The banks aren't pushing it. I don't think the average Quebecer supports using the American dollar."

Concordia University economist Harold Chorney, contacted by the Mirror following the event, was even more direct. "Only two kinds of people support using the U.S. dollar. The first are Quebec sovereignists: they think that if you eliminate the Canadian dollar, you eliminate a barrier to sovereignty.

"The second are wealthy people who have a lot of time on their hands and who like to vacation in the United States, because a low dollar makes travelling more expensive. These are people who see themselves as competing with Americans for luxury goods and services. I don't think we should dismantle our monetary institutions for them." :

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