We’re going to Montana!

By Ryan Pike

The world was a strange place back in the fall of 1976. Calgary had no C-Train line, no NHL team–the city was represented by the WHA’s Calgary Cowboys–and had a population of 500,000 and growing, thanks to a strong oil and gas industry bolstered by high prices due to lingering trouble in the Middle East. The high oil prices also contributed to the strength of the Canadian dollar, which was hovering around par. Prime minister Pierre Trudeau was continuing to struggle with Canada’s national unity, even after the post-October Crisis demise of the FLQ. Things seemed to be going fine for everybody until November, when the separatist Parti Quebecois won the provincial election. The world was stunned, particularly the financial world, who bailed out of investing in a country that looked like it was about to break up. The economy slipped and the Canadian dollar went into a freefall, never to be heard from again.

Thirty-one years and nine federal elections later, the Canadian dollar unexpectedly reached par with its American counterpart on Thu., Sep. 20. The resurgence of the loonie has come about as a result of several factors, most of which have occurred in the last decade: high commodity prices–especially the record-high oil prices–combined with political stability in Canada and economic instability in the United States.

The Canadian economy is largely export-based, with Canada generally extracting things like oil or minerals and exporting them to other countries, where they’ll be turned into something else. High commodity prices have meant that Canada is making more off of these exports than they had before. The commodity prices also coincide with a period of economic turmoil in the United States, largely based in uncertainty in the credit sector stemming from fiscal policies since the turn of the century causing large deficits and inflation. The positive effects of American turmoil are also bolstered by strong Canadian unity–or at least, a lack of disunity. Despite the perception that the Canadian dollar is soaring, the fact that every other major currency (except the Yen) have made sizable gains against the American greenback indicates the U.S. dollar is in a freefall. In essence, everyone’s gaining.

While the high dollar is great for the average Canadian consumer, it might not be good for the economy as a whole. Canada’s export-based economy flourishes when the dollar is lower than its competitors, making it cheaper to do business with or in Canada. It’s difficult to tell how much the high dollar will help or hinder the economy quite yet, particularly since many countries are benefiting from the weak American dollar. Either way, many manufacturing jobs in Ontario and Quebec have moved elsewhere as the dollar has gone up, a sign some Canadians may be adversely affected by the strength of the dollar.

Many economists are declaring the parity situation as a new status quo, as the American dollar won’t regain strength without a whole-scale resurgence of the American economy itself. If that’s true, the Canadian dollar will likely remain where it is for some time to come. It’s worth remembering, though, that economics is often a zero-sum game. For some to gain, others must lose.

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