Introduction
The Canadian dollar has continued to rise over the years. When put against the US dollar the value of the Canadian dollar or what is refer to as the Loonie has exhibited a close core correlation with United State dollar [CBC News, May 25th 2007]. Since 2002 for instance, the Canadian currency has been on an upward trend (Todd, 2004). Currently, one Canadian dollar is 0.8470 and 0.8585 low and high respective in exchange value to the US dollar that is $ 1 CAN= 0.8470 US and $1 CAN=0.8585 respectively [The Daily Statistics Canada, March 2, 2009] In addition, the Canadian dollar has appreciated massively from the historical lows of 0.6179 to US dollar as at 21st January 2002 to a remarkable high of 1.1030 to US dollar on the seventh of September in 2007 [CBC News, May 25th 2007].The Canadian dollar continues to increase in a similar trend in line with the US dollar. Since November 6 2007 the Canadian dollar had traded in between 0.97 to 1.03 US Closing at 0.9790 US on March 28 2009 [The Daily Statistics Canada, May 2, 2009].
In fact, the ever surging Canadian dollar has often surpassed the value of the latter in very many occasions [The Daily Statistics Canada, March 2, 2009]. The economic significance of the increasing value of the Loonie relative to the US dollar cannot be overlooked. Indeed, it has both the advantages and the disadvantages to the Canadian economy. Normally though, it would be expected that the increase in the Canadian dollar and its strength relative to US dollar will have total benefits to the Canadian economies. Typically, there has been a ranging economic disparity between the western and the eastern Canadian regions. The western is known for its extensive economic development and ideal industrialization. On the other hand, the economic developments in the eastern provinces of Canada are relatively poor. Consequently, the effects of the surging Canadian dollar and its variations over the years has had varied effects and significances to the economies of the western and the eastern provinces of Canada (Pravda, 2007). This paper therefore looks at the positive and the negative effects of the surging Canadian dollars to both the eastern and western provinces of Canada.
The Pros and Cons of the Increasing Dollar on the Western Provinces of Canada
The increase in Canadian dollar has affected the economy of the western provinces of Canada (both negatively and positively). Relative to the either parts of Canada, the economy of the western provinces of Canada greatly rely on the export of natural resources and products such as the forestry good energy related commodities, base metals and a wide range of agricultural orientated products both raw and processed (Todd, 2004). According to Todd, natural commodities exports accounts for close to 30% of the total western Canada’s gross domestic products. Since the natural exports are charged and traded in US dollar, western Canada has been all through the price taker for these commodities in the global marketing; making it possible for the Canadian markets to produce or rather extract and sell all the commodities without even the least influence on the global market prize. As a result, the strong increase in the value of the Canadian dollars in line with the US dollar has had adverse effects or rather posed serious problems to the overall economy of Western Australia (Todd, 2004).
The great reliance on such exports and the increasing value of the Canadian currency has made almost all the indicators of the gross domestic products in western Canada to plummet in 2004. Between 2002 and 2004 value of income generated by the exports in western Canada fell greatly with the exporters in the region loosing up to $ 10.5 billion in value of estimated export revenues over the same period of time a value which is close to 1.57% of the total western Canada’s gross domestic product (GDP). In addition, the surging Canadian dollar has adverse economic effects, on others economic sectors of the economy of Western Australia such as the service industry and the manufacturing sector [The Daily Statistics Canada, May 2, 2009, Todd, 2004]
It can be seen therefore, that the higher the reliance of the province on the exports of natural resources the higher the adverse economic impact as a result of increasing Canadian dollar. Similarly, the Alberta has been the most affected by the increase in Canadian dollar, being the largest exporter of crude oil and natural gasses. In the fiscal year 2002/2003, for instance, the province (Alberta) lost close to $6.7 billions in export revenues much of which is attributed to the increase in the Canadian dollar’s exchange rate relative to the US dollar. The British Columbia was also forced to forego estimated $ 2.3 billion in export revenues mainly from forestry commodities while Saskatchewan lost close to $ 970 million over the same period (Todd, 2004). In a rather desperate effort to bring down the soaring Canadian dollar, the Canadian federal authorities have been increasing the tax rates, a move that has most certainly born counterproductive results to the Canadian economy. Although the move partially succeeded to curb the rate of the Loonie increase, it has adverse effects on the economy in that the high interest rates discourages investments and thus stems down economic growth [CBC News, May 25th 2007]
However, the increase in the Canadian dollar has greatly favored the importers of Western Australia. Increase in the strength of the Loonie relative to the US dollar has made the import of capital machinery equipment among others in to the western capital less costly i.e. imports costs have been greatly lowered (Todd, 2004). Also, the Variation in the dollar value relative to US dollar seems to favor western Canadian direct investments (FDI). After almost equaling in 2007, the Canadian dollar went of balance the US dollar in the following year weakening by an estimated 19% against the latter. In the same year however, Canada had the biggest increase in its foreign direct investments accounting for an elegant 24% raise most of which was attributed to increased FDI in the United States of America. Nevertheless the significant negative effect on natural resources by the surging dollar can not be fully offset by the positive effect on the export (Pravda, 2007). Consequently, the total effect of the increasing Canadian dollar on the GDP (economy) of Western Australia is negative.
The pros and cons of the increasing dollar on the eastern provinces of Canada
The increasing Canadian dollar has been criticized for the widening economic gap between the economically elegant western Canadian and the rest of Canada. Unlike the western Canadian province that largely relies on export of natural resources, the eastern provinces economy is greatly dependent of tourism, fishing and agriculture (Pravda, 2007). Before the year 2002, when the Canadian dollar was performing dismally relative to the US dollar the eastern Canada tourism was also performing badly (Todd, 2004). Similarly, Todd says that the increase in value of the Canadian dollar since the onset of 2002 has rejuvenated the eastern Canada’s tourism to a great extent. The strong Canadian dollar undoubtedly favors the visiting tourist. As a result, the increasing value of the Canadian dollar has a positive effect on the economy of eastern provinces on Canada such as Quebec and the garden of the gulf an area that is the host of the most extensive and attractive tourist sites (Pravda, 2007).
However, it has been extensively blamed for having negatively affected the sectors of the economy especially those which rely on exports. Although the droughts that have hit the eastern parts of Australia are largely attributed to the poor economic performances of the eastern provinces, the rising dollar and the weakening of the United States dollar can be attributed to the further degeneration and worsening of the economy especially since 2003 (Todd, 2004). The federal fiscal policies apply to all the Canadian provinces. Consequently, the increased interest that the federal government has enacted as a result of the surging dollar has undoubtedly negatively affected the economy of eastern provinces in the same way as the western provinces.
Conclusion
The Canadian dollar has been continuously and steadily gaining strength against the US dollar over the last few years. In fact, it is almost equaling or sometimes surpassing the USD. The effects of this increase of the dollar relative to the US dollar have been varied especially between the eastern and the western provinces of Canada, whose economies are characterized by a wide disparity. While the western is more economically viable and has reach banks of economic resources and well developed agriculture, the eastern provinces are mainly dry and faced with often drought leaving them to rely on tourism, fishing and limited agriculture. As a result the economies of the western provinces have been adversely affected by the dollar since the stronger dollar over US dollar does not favor exports. On the other hand the eastern tourism has flourished in the wake of the growing dollar strength.
Work cited
CBC News, The Canadian Dollar Hits New 30 Years High (2007). Web.
Central Intelligence Agency “The World Factbook: Canada” (2006). Web.
Pravda, Canadian Dollar Tops US Brother For The First Time In Three Decades, Department Of Finance, Canada (2007). Web.
The Daily Statistics Canada, Canadian Economic Accounts (2009). Web.
Todd H, Counting the Cost: Building The West: Impact Of The Rising Loonie On Western Commodity Exports (2004). Web.