How can a currency like the Canadian dollar behave almost like an emerging market currency? Let us look at the Canadian positives that should tell us differently in an objective way. Later, let us us look at some of the fundamental negatives and what the country should do about them or respond given the calamity with its currency.
Let us first look at Canadian financial institutions. They are rated as some of the most stable and financially secure in the entire world. That is a serious point for a country in this day and age where banks from Germany to the United States are often lower ranked but both economies get a much bigger pass. Canadian banks stood much taller than most American and European banks during the 2008 meltdown and contend they would still do better in any future massive crisis.
Let us also look at the quality of the work force. Canada’s education system when you include its universities and private schools is just about outranked by few. Finland may have a better primary school system but certainly its universities are far and in between in the top 100. Canada is number three in having the most universities in the world within the 100 ranking. Those who beat it are much more populated, that is of the United Kingdom and the United States. References include a London newspaper research ratings such as from the Times.
Canadians also have some of the most livable cities in the world with one, Vancouver, where my alma mater is ranking top in previous years. When people think of Canada, they think largely of peace and reasonably decent health programmes, hospitals, public pensions, etc. Canads has world class medical faculties though may have slipped somewhat over the last decades and some hospitals have unacceptable waiting lines for surgery and emergency but are still dependable all in all.
Now the negatives. The problem with Canada is two fold. Lee Kwan Yew of Singspore which is close to where I have lived described Canada comparatively speaking as a low compression engine.
I would add structurally it is a problem as way too much has been invested in commodities especially low margin (nowadays) tar sand oil, which is not so environmentally beneficial in its carbon print. Shame on Canada will all those sophisticated grads so involved in questionable environmental stewardship. However it is not immediately damaging to the Canadian dollar but certainly in the long term as environmental global compliance becomes costly such as meeting the targets of the Paris climate change accord.
We like to dig things out of the ground or off the ground than dig enough things out of our impressive grey matter that includes a decent enough number of Nobel prize winners, one of whom graduated from my high school but did his work in the US like another noble laureate who taught at my alma matter.
That low compression aporoach means also no or a limited high value defense industry of our own effectively excluding a few frigates being made.
And this problem includes sitting back and letting companies of high tech value such as Nortel and Blackberry get buried. At least we have Bombardier – for now building small to medium size airplanes and trains and subway cars.
What country lets their gem of a global telecommunications giant get sold off to Sweden? Canada did. Canadians did not even really sufficiently react or get angry enough about it. This relaxed attitude lets Anericans own our automobile industry and that prevented us also from having our own fighter aircraft as Sweden does.
So when commodity prices collapse people forget about our financial strength, education levels, and better deficit and debt management than most countries. They forget our
fairly well trained work force and being next door to the largest economy in the world. They still think of us as drawers of water and tree cutters – lumberjacks. They are significantly but only partially right.
And our central bank thinks such a low dollar is great for exports. I talked to s Swiss who had a major investment fund in Canada. He is not happy to see that fund go down by a huge percentage due to the fall of the Canadian dollar. Investors from abroad have been scalped and the many Canadian importers of factory equipment are paying a high import price. We need to also raise our competitiveness and productivity but are still globally fairly high ranking but having slipped over the last decade or so.
For a G7 country, a 68 cent dollar is shocking and investors will flee if this erosion gets worse. The 55 cent target as talked about by a former RBC Vice President is really further shocking and such a news story’s major coverage should tell us something worrying. How could investors seriously describe a G7 currency looking like it is going the way of the Brazilan currency?
Canada will have to pull up its pants and truly develop – or should say, redevelop- its high tech sector of an aggressiveness that will make American competitors cower and be sorry to go up against us. Now that is high compression rather than keeping on selling out our iconic companies to Americans like Molson’s breweries or letting chief newspaper editors advise Canada to be sold to America.
Without a more high compression approach in such a way facilitated mildly but earnestly by the government, we shall become just a highly sophisticated Mexico with growing structural problems which may finally work their way in pulling down the big five banks and overall image as a good investment place.
No wonder I essentially got out of Canadian dollars years ago. I know my country too well including knowing it is not worth 60 percent or less of a US dollar. Buy Canadian dollars soon and do not wait for it to go below 65 cents before doing so. It may have problems but its currency value is not a completely accurate reflection of where it should be; just a good indicator of the hard work ahead to make the Canadian economy truly strong.