ANOTHER VIEW

The dollar that would not plummet

Remember the dire warnings about the dollar if Meech Lake failed? Isn’t it great when the threats of politicians backfire?

CHARLES GORDON August 6 1990
ANOTHER VIEW

The dollar that would not plummet

Remember the dire warnings about the dollar if Meech Lake failed? Isn’t it great when the threats of politicians backfire?

CHARLES GORDON August 6 1990

The dollar that would not plummet

ANOTHER VIEW

Remember the dire warnings about the dollar if Meech Lake failed? Isn’t it great when the threats of politicians backfire?

CHARLES GORDON

It’s a terrible thing, really, what’s been happening to the dollar, with all the implications for exports, imports, the balance of payments, the rise in foreign ownership and so on.

But isn’t it great?

Isn’t it great that the dollar has soared, that it has reached its highest levels in 10 years? Isn’t it great when the experts are wrong? Isn’t it great when the warnings of gloom and doom are not borne out? Isn’t it great when the threats of politicians backfire?

Now, sure, we’ll get new versions of the gloom-and-doom warning. The high dollar means it is cheaper for Canadians to import, cheaper for Canadian tourists to travel in the States, cheaper for Canadian shoppers to make those lightning trips across the border. But that is not going to help our economy when they do so. The balance of payments will suffer, we’ll have to borrow more abroad, foreign investment and foreign ownership will have to grow.

We’ll be told by the doom-and-gloomers that it is not so great having a dollar that keeps rising instead of dropping.

But still. Remember the tail end of the Meech Lake drama? Remember the dire warnings? Remember the Prime Minister telling the Newfoundland legislature that foreigners, the international community, would not be able to respect us if we let Meech Lake slip through our fingers?

Remember Brian Mulroney’s solemn pronouncement to the television cameras—that our allies and trading partners would not be able to have confidence in us if we continued to demonstrate the kind of political instability the rejection of Meech apparently demonstrated?

Everybody knew what was going to happen. If we did not do what the government wanted us to do, foreigners would throw away their Canadian dollars like so much confetti at a parade. The value of the dollar would plummet,

Charles Gordon is a columnist with The Ottawa Citizen.

international confidence would be lost. We would be a banana republic and without even the bananas.

And what did happen? Political instability, Canadian-style, did not seem to bother the Gnomes of Zurich or gnomes anywhere else, for that matter. People bought our dollar. The value of our dollar went up, almost as if the world believed in Canada. Considering Canadians are thought not to, that is rather amazing.

When the dollar got up over 86.8 cents, a Royal Bank analyst expressed the financial community’s surprise: “Nobody, but nobody, was forecasting, a couple of months ago, that the dollar would approach these levels,” he said.

Terrible, isn’t it, what’s going to happen with the dollar up so high. But isn’t it nice, for a change, to have something unforecastable happen?

Economic innocents that most of us are, we have a difficult time accepting the fact that a dollar of high value isn’t good for us. We grew up, many of us, in the days when the Canadian dollar was always worth more than the American one. Having a bigger dollar was part of being a Canadian. When John Diefenbaker devalued the dollar, back in the early 1960s,

there was shock and horror. Devaluing the dollar, Dief’s critics said, was tantamount to devaluing the country.

Today’s logic says they were wrong. Nowadays, devaluing the dollar is only tantamount to devaluing the dollar. But the impulse to protest was genuine, springing from some basic, common-sense impulse in us, the one that says it is better to have your money worth more than less. Even now, although we know that a lower dollar helps our experts and our tourist trade, it is somehow satisfying, in that same commonsense way, that the lower dollar fails to happen.

We know it is wrong to think that, but human nature is human nature. And besides, the government itself tells us, from time to time, that it is a bad thing for the dollar to drop. Keeping the dollar from dropping is the excuse that is always given when the Bank of Canada puts interest rates up. Right now, it is working too well. Keeping the dollar from dropping is the long-range rationale for all those budget cutbacks the federal government does; it is the excuse for cutting Via Rail, for squeezing social programs, for cutting back regional development. The budget deficit hurts foreign confidence in us. When foreign confidence drops, so does the dollar. So take your medicine.

No wonder we think it is good when the dollar rises. It is that fiscal conservative in us reacting. Mind you, there is the perverse cynic in us laughing too, the one who enjoys it when the experts fall on their faces. There is nothing wrong with laughing at the experts. It is a valuable life experience for them, being laughed at.

But we should not laugh them off. They are, even as we speak, devising new scenarios of doom, new reasons not to enjoy ourselves, no matter what the economic situation, new reasons to accept policies we can’t stand.

There will always be new “psychological barriers,” which, when the dollar goes through them, one way or another, will cause all hell to break loose. The experts will tell us what they are and what unpleasant treatment we will require to prevent a complete collapse.

While we wait for that, it is interesting to speculate on why our dollar—the good old dollar—has done so well when everybody said it wouldn’t. Perhaps the Gnomes of Zurich and those grubby little money traders in Chicago liked to see the Meech Lake accord go down. Perhaps they fancy the idea of Canada breaking up. Maybe they want to buy a piece of Canada, cheap, post-collapse, and build a cottage on it or something. They would need Canadian money to do that, which would explain some of the demand.

Or perhaps—this the wildest idea of all— they don’t think the country is goi ngtobreakup at all. Perhaps they think the country is strong and will survive and grow and prosper. That would be a pretty far-out thing to think. Up to now, only ordinary Canadians have thought it. But who knows. Maybe those gnomes aren’t so dumb after all.

If they are, we will have to do something really stupid now in order to lose their confidence, so that the dollar will plummet and some economic normalcy can prevail.