STEVEN CHASE, Globe and Mail Update
Posted AT 10:43 PM EDT on 22/11/07
OTTAWA — Canada should replace its dollar with a North American currency, or peg it to the U.S. greenback, to avoid the exchange rate shifts the loonie has experienced, renowned money manager Stephen Jarislowsky told a parliamentary committee yesterday.
“In a country like Canada we cannot permit ourselves to have a dollar that goes through these kind of gyrations,” Mr. Jarislowsky told MPs on the Commons finance committee. ” I think we have to really seriously start thinking of the model of a continental currency just like Europe.”
MPs on the finance committee are probing the consequences of the strengthened loonie – which has risen more than 20 per cent against the U.S. greenback this year.
Mr. Jarislowsky, a former Canfor Corp. director, said the loonie’s rise to above par with the U.S. dollar is destroying manufacturing and could devastate the forest sector.
“We don’t have a single mill in Canada which isn’t losing cash at the current exchange rate despite the fact we invested hundreds of millions in dollars into new equipment when we had the money,” said Mr. Jarislowsky, chairman of Montreal investment firm Jarislowsky Fraser Ltd.
“I believe that if we stay at the present levels the entire forest products industry practically is going to be in liquidation-bankruptcy and there’s going to be an enormous loss of employment.”
He scorned suggestions that now is a great time to invest in new equipment because the stronger loonie can buy more.
“Very often we are being told that this is a wonderful time to invest but if you are going to go bankrupt anyhow, and if the dollar keeps shooting further up, I would say it would be throwing good money after bad,” he said.
You may as well go bankrupt and try to save as much of your money by pulling it out of there before you go bankrupt rather than putting additional capital into the company.”
Mr. Jarislowsky said Canada could either aim for a common North American currency or peg the loonie to the U.S. greenback at about 80 cents (U.S.), allowing it to float within a small band.
“There could be a 5 per cent margin on either side and this would make sense for the Canadian dollar which in my opinion should be worth about 80 cents [U.S.] so it should go up 5 per cent or down 5 per cent from that benchmark.”
Mr. Jarislowsky noted that other countries such as China peg their currency.
However the federal Finance Department is cool to such ideas. It resolutely opposes the notion in briefing notes prepared for Finance Minister Jim Flaherty and obtained by The Globe and Mail under access to information law earlier this year. Finance officials told Mr. Flaherty that a common currency would mean an erosion of sovereignty for Canada.
They say it would ultimately mean Canada abandoning an independent monetary policy and therefore its ability to directly influence economic conditions within its borders.
“A North American common currency would undoubtedly mean for Canada the adoption of the U.S. dollar and U.S. monetary policy,” Finance officials say in the briefings. “Canada would have to give up its control of domestic inflation and interest rates.”
Finance also believes that alternatives to a common currency, such as pegging the loonie to the greenback, are even worse ideas, notes show.
Separately, tourism officials warned MPs that the stronger loonie will only worsen the outlook for their sector.
“In five years, we have seen the number of inbound customers from the United States drop by an astounding 34 per cent,” Tourism Industry Association of Canada vice-president Christopher Jones said in a statement prepared for the finance committee.