Home
Commentary: USD correction continues to be postponed !
Will the Fed raise rates any further? !
Korean Won remains ‘stable’ in wake of nuke test !
Pound and Euro move in lockstep !
How does public debt affect currencies? !
UK inflation data buoys Pound !
Russia buys Yen for forex reserves !
Emerging Market currencies hurt by risk aversion !
NZD strength attributed to hedge funds !
ECB lowers rate hike expectations !
Canada promises to forego intervention !
Thai Baht shakes off political crisis !
China’s forex reserves on track to reach $1 trillion !
How high will the Kiwi go? !
G7 avoid talk of Yen intervention !
Commentary: RMB’s appreciation is tied to inflation !
G7 will discuss Japanese Yen !
Foreign exchange market !
Forex scam!
Financial market!
FOREX 101!
Exchange rate!
Exchange rate regime!
Fixed exchange rate!
Futures exchange!
Products
Currency!
Currency future!
Canada promises to forego intervention
The role of Central Banks in forex markets has become a hotly debated topic, as banks around the world continuously to intervene to prevent their currencies from appreciating. Canada is one of the few countries that has not attempted to stifle a significant rise in its currency. By all accounts, Canada should be an obvious candidate for intervention, for a strong Canadian Dollar (“Loonie”) has punished its export-driven economy. Canadian leaders, however, argue that the appreciating Loonie has forced Canadian businesses to become more efficient, and thus, welcome a more expensive currency. It has pledged to stay out of currency markets and allow market forces to determine the value of the Loonie. Bloomberg News reports:
Canada, which buys more U.S. goods than any other country, suggested it will keep out of currency markets for another five years and warned other nations to follow suit or face a global slowdown from trade imbalances.
Read More: Canada to Keep Out of Exchange Markets, Wants Others to Follow
Canada to Keep Out of Exchange Markets, Wants Others to Follow
By Theophilos Argitis
Sept. 18 (Bloomberg) -- Canada, which buys more U.S. goods than any other country, suggested it will keep out of currency markets for another five years and warned other nations to follow suit or face a global slowdown from trade imbalances.
Canada's inflation-targeting agreement, which requires the Bank of Canada to take measures to keep inflation at 2 percent, expires at the end of the year. Central bankers will probably renew the five-year agreement without ``major changes,'' Governor David Dodge said this weekend in Singapore. Central banks can't target inflation and exchange rates at the same time.
``You would be surprised, I think, if we had major changes in the agreement,'' Dodge told reporters Sept. 16. Dodge, 63, was in Asia for a meeting of finance ministers and central bankers from the Group of Seven industrialized countries.
While Asian economies such as China have been slow to let their currencies appreciate, Canada's dollar has soared 40 percent since 2002. That has made U.S. goods cheaper in Canada and crimped Canadian exports, causing plant closures and layoffs that have helped ease global trade imbalances. Canada has bought $133 billion of U.S. goods this year, more than four times China's purchases.
The adjustment, while difficult, has strengthened Canada's economy by forcing businesses to become more efficient, Dodge said. Canada will have the fastest-growing G-7 economy next year, with a 3 percent pace of expansion, the International Monetary Fund said last week. Dodge said this weekend the nation's outlook hasn't changed enough in recent months to alter the central bank's projections for growth and inflation.
``Canada is making a lot of the adjustments and making the adjustments quickly,'' Dodge told reporters Sept. 17. ``Where we get collectively as a globe into trouble is when adjustments are stopped up by one policy or other.''
Chinese Yuan
The G-7 finance ministers again urged China to make its currency more flexible, in order to help resolve trade imbalances that threaten to undermine financial markets and hurt global growth. The U.S. trade deficit jumped to a record $68 billion in July, while China had a record $18.8 billion surplus in August.
To help stabilize markets, Canada has advocated giving emerging economies more power at the IMF, a proposal meant to give those nations an incentive to answer calls for currency flexibility. Finance Minister Jim Flaherty led talks on the issue this weekend.
Also, while Japan and China are opposing efforts to give the IMF power to blame specific nations for lopsided trade flows, Flaherty and Treasury Secretary Henry Paulson want the fund to have more power to police currencies.
`Shared Responsibility'
``IMF members have a shared responsibility to pursue policies that support a well functioning international financial system,'' Flaherty said. ``The fund's surveillance must take into account the potential spillover effects of those policies on other countries.''
Those spillovers include harm to Canada's manufacturing industry, which has shed 10 percent of its workforce since 2002. Exports make up 37 percent of Canada's C$1.4 trillion ($1.3 trillion) economy, a percentage that trails only Germany among G-7 countries.
``Canada is a test case for the coming adjustment to global imbalances,'' David Watt, a senior economist at BMO Nesbitt Burns in Toronto, wrote in a Sept. 13 note to clients. ``This needs to be repeated in many nations in order for global imbalances to be resolved in a non-disruptive fashion.''
The U.S. is also partly to blame for imbalances and needs to do more to share the burden with China by curbing consumption, Flaherty said in a Sept. 15 interview with Bloomberg News.
`More Caution'
``Both issues need to be addressed in tandem,'' Flaherty said. ``We need to see more flexibility in the Asian currencies, and we need to see more caution in the United States.''
The biggest challenge for Flaherty may be to keep the U.S. engaged, said Walid Hejazi , a professor of international business at the University of Toronto, said in a telephone interview.
While some U.S. businesses complain about unfair competition from China, others such as Wal-Mart Stores Inc., the world's largest retailer, are too invested in the country to favor a currency appreciation, Hejazi said.
``I'm not sure how much the U.S. really wants'' the Chinese currency to appreciate, he said. ``I'm not sure there is much of an incentive'' for the U.S. to press China.
To contact the reporter responsible for this story: Theophilos Argitis in Singapore at targitis@bloomberg.net .
Yến !Huyền !Loan !Thanh !Thuý !Lan !Linh !Hiền !