The Bank of Canada has made it clear it wants a lower dollar.  They continue to voice concerns about “the damage a strong dollar will do to the Canadian economy”, and believe Canada needs a weak currency to promote growth. Yet, a falling currency is the worst thing that can happen for the simple reason that it lowers ones purchasing power by pushing up the cost of imports. This makes its citizens poorer on the global stage.  A rising currency allows us to purchase more.    

The Bank of Canada’s interest rate policy is encouraging rising unemployment and a weakening economy. Interest rates have allowed for the average Canadian household to acquire debt to the tune of 165% of their income.  The Bank is determined to make every saver poorer in order to keep the borrower afloat.  Our interest rates are still sliding with no bottom insight.  Nobody in government or in the Bank of Canada understands that if consumers have little money they will not spend, let alone save.  Without savings, there is no investment and a weak economy.  Keeping borrowers happy with low interest rates solves absolutely nothing.

Canada’s strongest economy occurred between 2002 and 2007.  During this period we had near zero unemployment, low inflation, and the saver was rewarded with interest rates bouncing around 5%.  The Canadian dollar was the hottest currency in the world at the time.  On March 13, 2002 the Canadian dollar was worth $0.626US and then climbed by 75%, to an all-time high of $1.10US.  The Toronto stock exchange over the same period rose 34.4%.  Clearly, a strong Loonie had a positive effect on the economy.

There are plenty of examples throughout history that a currency can attract investment and contributes to prosperity.  Between 1970 and 1990 the Swiss Franc, the Dutch Guilder, the German Mark and the Japanese Yen all increased in value by over 300% against the U.S. and Canadian dollars.  During this period, all four experienced booming economies.  During the nineties the most successful economies were the U.S. and Australia.  Guess what?  Their currencies soared.

Today, the strongest economies are the U.S., New Zealand, and Switzerland.  All three have strengthening currencies.  Why can the Bank of Canada not see what has taken place and understand that a rising currency results in prosperity.

In the summer of 2007, Canada’s GDP was growing 2% annually and interest rates were 4.5%.  Today, Canada’s GDP is growing at 2.6%, yet 10 year T-bills are 2.04%.  The situation is the same in the US where in 2007 the 10 year T-bill yields 4.22% and GDP was 2.4%.  Today, that yield is 2.4%, GDP is 3% and savings accounts earn 0.09%.  North America is going backwards.

Today’s policies are punishing savers and probably forcing many people to work beyond retirement age.  The majority of savings are in bank accounts earning anywhere from .1 to 1.2%, before taxes. Doubling interest rates would increase passive income, attract investment throughout the economy and create a much needed higher currency.  The end result will be a wealthier Canadian.