November 20, 2012

IMF Considering Loonie As Reserve Currency

Financial Post:

The IMF plan comes as Australia and Canada have shown more signs of stability in the fallout of the 2008 financial crisis than the world’s biggest developed economies. While the U.S., to the U.K. to Japan have been coping with increasing debt loads, deficits in Canada and Australia are forecast to be below 5% of gross domestic product in 2012 and are expected to shrink.

“It really helps to cement the stability of these currencies,” Ravi Bharadwaj, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview.

(h/t Kevin B.) Posted by Kate at November 20, 2012 12:56 AM

It is a very nice thought, and a great tribute to PMSH and his cabinet.

Alas, someone had better tell the IMF about Thomas Mulcair, the Rat Queen, McGuinty, Lorraine Michael, and various other notables.

Posted by: John Lewis at November 20, 2012 1:53 AM

Uh, clearly the IMF hasn't been keeping up with developments in Australia.

They have a strong Reserve Bank Governor in Glenn Stevens, the treasurer is, shall we say, not so strong. Inept in fact.

I'd hold off on the Australian bet for now if I were the IMF.

Posted by: Scott at November 20, 2012 2:11 AM

true Wayne Swan is a bit strange these days but anyone aiming for a budget surplus today is worth an A-.

Australia has been performing very well since the Paul Keating began his anti -Banana Republic Reforms in 89. We took the pain & got the gain.

Congrats to Canada & Australia.

Posted by: miss Plonkie at November 20, 2012 2:52 AM

Australia is good at promoting itself but the people in charge are unionists and radical lefties. They are rapidly building up the debt just like Trudeau. In addition they are totally reliant on one customer, China. I would go short on down under.

Posted by: James X at November 20, 2012 3:21 AM

James X. Australia is a minority guv of Labor/independents fairly elected . The other side is a minority. Small c conservatives / agrarian socialists.

From 1972 -2010 there has been a 50/50 rule. the next election is 2013.

Australia's trade is China Japan Sth Korea somebody else then USA. It is positioned well for India., Sth && East Africa , SE Asia the Pacific & Chile & Argentina.

a population of only 22 million With stable rule of law , it is positioned as well as any nation for the future.

the debt levels are better than Canada. But both are largely due to mining / Oil Infrastructure investments.

Don' t be so pessimistic. Comm nations rule !

Posted by: miss Plonkie at November 20, 2012 4:46 AM

James X. Australia is a minority guv of Labor/independents fairly elected . The other side is a minority. Small c conservatives / agrarian socialists.

From 1972 -2010 there has been a 50/50 rule. the next election is 2013.

Australia's trade is China Japan Sth Korea somebody else then USA. It is positioned well for India., Sth && East Africa , SE Asia the Pacific & Chile & Argentina.

a population of only 22 million With stable rule of law , it is positioned as well as any nation for the future.

the debt levels are better than Canada. But both are largely due to mining / Oil Infrastructure investments.

Don' t be so pessimistic. Comm nations rule !

Posted by: miss Plonkie at November 20, 2012 4:47 AM

yup, yup, peg yer bets on the toony, and then watch the shiny-pony F it up once he gets errected.......erm, elected

Posted by: NME666 at November 20, 2012 4:49 AM

Seconding John Lewis's comments, I'd extend the list of "risk factors" to include the "majority of Canadians" who think that Obama was the appropriate choice for America and the world -- those folks are downright scary in their naivity and close-mindedness, actually.

When one considers the list of bi-lateral issues in the Canada-U.S. relationship that could go badly wrong for Canada (they're trending that way now) -- and the difficulty of overcoming, through other sources, the associated implied losses, I'd say that we've still got our work cut out for us.

Particularly when we consider, as John rightly points out, the ball and chain gang across the aisle. I get a serious kick out of the media line that Mulcair is some sort of Tony Blair figure in Canadian politics. Mulcair is nothing of the sort -- he is an obstinate, contrarian, unreformed socialist of an extreme variety who refuses to recognize any common ground with Harper on the definition of the national interest. At least Tony Blair accepted, as one of his points of departure, the need for Margaret Thatcher's economic reforms and understood the aspirational nature of support for the Conservatives. We haven't undergone anything like the Thatcher revolution in Canada (it's coming), and Mulcair, et. al. can't even accept the little that has been done.

And John's also right about Ontario and Quebec, which, but for the international financial focus on Ottawa hiding the reality, are national embarrassments -- Ontario borrows $46 million per day (which McGuinty promised he would never do; down from the days of the financial crisis) to finance a deficit composed overwhelming of labour costs and we have no functioning parliament and no government with any authority or any willingness to deal with the problem?

I agree with John that it's gratifying to see Canada recognized in this way, but I'm more interested in winning a race to the top than in losing a race to the bottom.

Posted by: David Southam at November 20, 2012 4:54 AM

Btw you 2 are not very friendly . If you are Canadian it goes to show why we don't have much in common except Bonnie Prince Charlie & mum.

I only read this blog because I met a Canadian veterinarian in Fiji who was very funny who said I might enjoy it.

if you are American then I understand. You didn't dots well ridding yourselves of Leftists.

Posted by: MissPlonkie at November 20, 2012 5:00 AM

Just a gut feeling, but I don't want any more truck-or-trade with the IMF than absolutly necessary. When the whole world's in the $hitter and they come knocking on your door 'cause you look stable, it's a good time to count the silverware.

Posted by: Arty at November 20, 2012 6:29 AM

What would this mean to Canada? I see the supply of Canadian dollars massively increasing to meet the demand of other users, then if the demand dries up massive inflation because the world is awash in Canadian dollars. Any economists care to comment?

Posted by: minuteman at November 20, 2012 6:30 AM

No, Minuteman, that's not what happens. The supply of dollars is a function of the size of Canada's economy, not of the demand for it by foreigners. The problem with becoming a reserve currency is that the value of the Canadian dollar appreciates. Everyone else's currency cheapens in value as the Canadian dollar strengthens. That has the effect of making everything Canada exports more expensive.

This has been going on for years with the Swiss franc.

There's only a few ways to deal with a sharply rising currency, neither of which is very good.

1. Lower the interest rate on Canadian government securities. This won't work because interest rates are already close to zero. The United States has been trying to deflate its dollar for more than a decade this way. That's what led to the currency wars over the past 10 years. No one likes to have deflation exported to them, and they retaliate in kind.

2. Impose currency controls. Switzerland is trying this by pegging its franc to the Euro. It won't work, because Switzerland doesn't have the economic size to maintain it against speculation. As in the case of China, pegging the dollar value very quickly gets you labeled a currency manipulator. China is too big to be the target of economic sanctions (it owns a huge proportion of all US debt) but Canada is not.

Posted by: cgh at November 20, 2012 7:19 AM

Were it not for the current bull market for most of the commodities that Aust and CDa sell they would be little better off than the rest of the western world.

If the US and other producers ever get the frack and other extraction methods for oil really rolling, the collapse in commodity prices will hurt the aus and CDa economies severly and be a real shot in the arm for the us as its economy uses oils as a feedstock not a raw export.

Posted by: Gord Tulk at November 20, 2012 8:02 AM

How a reserve currency the Can dollar isn't on anyone's radar screen.

Posted by: Gord at November 20, 2012 8:06 AM

MissPlonkie, 5:00a.m. --

Commonwealth nations do rule, and I suspect that they might be ruling a good deal more in the future. Good to hear from you!

Financially-minded Canadians are a bit out of sorts these days, minded to search high and low for tangible value in the economy as opposed to illusory, nominal or derivative. Don't take it personally. We really are in bed with an elephant, and this one's having a very bad dream at the moment. Australia's got its own room, remember, so you're probably in less imminent danger.

Posted by: David Southam at November 20, 2012 8:24 AM about shades of the sci-fi movie "Barbwire"....

Posted by: GaryinWpg at November 20, 2012 9:05 AM

John Lewis and David Southam, well said. Canada is only one election away from having a disaster on many levels as prime minister, as both the Marxist Mulcair and the Shiny Pony Trudeau would take us to the financially ruinous policies of Europe.

Posted by: Ken (Kulak) at November 20, 2012 9:09 AM

Great. If you think Canadians live beyond their means now, wait till people use the loonie as a reserve currency. How do you think the US managed to dig itself as deep as it has, except that banksters were (and for now still are) willing to pretend that Fed confetti was as good as gold?

Let's be honest---the only people benefitting from parity are people with the money and time to go on cheap vacations in the south and buy cheap cars and groceries in the States, and politicians like Redford and McGuinty who are spared from growing a spine and telling the civil service unions to go to Judas, because the politicians can borrow the money to make them go away.

The plain people live in fear for their jobs, and the price of anything their employers try to sell abroad a good 30 percent higher than it really ought to be. If, God forbid, Mulcair ever becomes prime minister honestly, it'll be on account of the high dollar.

Posted by: Dick Slater at November 20, 2012 10:04 AM

Nice one Dick.

Conservatives who take comfort in PMSH should gird themselves for the next federal election. I suggest fear was the main reason the CPC got their majority. Let Daddy save us. The better job that Harper does the bigger the comfort level and the more likely that Turdo Jr. is the next PM.

Conservative thought is a failing brand. Greed, envy and the education system guarantees that. It will take a depression to revive 'critical' thought in Canada.

Posted by: ct at November 20, 2012 10:34 AM

Those commenting here on Pierre's son have a point. Canada looks good now, but everyone who is not a Canadian who is reading this needs to understand that a PM like Harper is an anomaly in this country. A scion of Canada's Kennedy-ish family will be the new PM shortly (because he is sooo adorable and we were stupid enough to give women the vote) and the old Lib cronies behind him will return Canada to all its former tax-and-spend, anti-corporate, cash-to-Lib-friends, declining-dollar glory.

Posted by: ann at November 20, 2012 11:43 AM

The only reason we have PMSH is because Chretien and Martin couldn't play nice with each other so they aired each other's dirty laundry in the open.Now that the Liberal media has learned from their mistakes they will be all in for Justin then it's goodbye to the economy.

Posted by: H.Ryan at November 20, 2012 1:42 PM

Once they get news about Justin shiny pony getting the job as pm they will have a sudden change of heart !!

however i think canadians are waking up !!

Posted by: paul in calgary at November 20, 2012 4:30 PM

From the comments at the link,I was astounded to find that some people don't like our PM as much as I/we do!

"PM harper will be in the federal prison system shortly, charged with election fraud and treason, he will be jobless for about twenty years."

Posted by: dmorris at November 20, 2012 6:58 PM

Well ... it's a pleasing thought to have that our Loonie could be a currency held in high regard.

But it is nothing but loon poop.

Demonstrating once again that the bureaucrats that run the IMF are just as stupid as most other bureaucrats.

Posted by: OMMAG at November 20, 2012 7:02 PM

Stay away from fiscal Pirates is the only sane thing to do.

Posted by: Revnant Dream at November 20, 2012 7:20 PM

Sounds fishy.
When Brazil devalued and Argentina held to parity with the US dollar, it didn't take very
long before the Brazilian economy was running flat out pushing its exports everywhere.
That included free trade partner Argentina which was facing collapse of a now high cost
economy when it finally also devalued after borrowing huge amounts of foreign exchange
to "keep its currency strong" against "speculators".

Strong currency Canada vs a quick, massive devaluation of the US dollar would be a
Soro's short and short that he must dream about every sleeping minute.

Posted by: Sgt Lejaune at November 20, 2012 10:49 PM

The IMF considering Canada's Loonie a reserve currency is more an indication of how desperate international finace is than anything else. Any country that depends on resources for it's financial base is doomed. Canada has not progressed much in the last 100 years.

The failed industrial policy known as the Canada-USA Auto Pact receives scant discussion or anaylsis. Billions of taxpayers $s for what? Canada has one of the poorest conversion rates of small to medium businesses into large, market leading enterprise.

PM Harper is making the best out of a poor hand. A country dominated by leftards academically, in the MSM and in politics. 65% of the populace is left of center. When the IMF praises I feel for my wallet. As Euroland crumbles they will be back for a handout!

Posted by: ct at November 21, 2012 9:48 AM

We should stay as far away from the manipulaters at the IMF as we can.Anyway before long when Justin is PM we will soon be returning to the 70 cent dollar and the tax and spend policies of the liberals.He has his fathers arrogance and his mommies brains so hang onto your hat.

Posted by: Frankemm at November 22, 2012 10:45 AM

It sounds good but anything to do with the IMF is usually a fraud.

Posted by: dave at November 22, 2012 3:58 PM
Post a comment

Before submitting, review the post to ensure your comment is on topic and does not contain words that might get caught in the spam filter (eg: insurance, viagra, online, poker). This is not a forum or a repository for off-topic link dumps. Profanity is discouraged. Take your extended debates and/or flamewars to private email. THESE RULES APPLY TO EVERYONE. Thank you.

Remember personal info?