Floating exchange rates the only viable solution Floating Exchange Rates The Only Viable Solution Stentor Smith For some, the collapse of Mexico's economy proves that floating exchange rates and markets without capital controls are deadly.
PDF As I near the end of my term as Governor, I find myself looking back more and more, focusing on the broad, longer-term trends in our economy and in financial markets and on what those trends may imply for the future.
One of the issues that has often surfaced over the years is the exchange rate for the Canadian dollar. Indeed, over the past couple of years, it has been a topic of considerable public discussion.
That discussion has revolved around such questions as: Should we continue floating, or should we peg our currency to the U. In fact, should we even keep our own currency, or should we adopt the U. That there is such interest in our exchange rate is hardly surprising.
Some of the more recent attention no doubt stems from public concern about the relatively low value of the Canadian dollar in comparison to the U. But the fundamental reason for this interest is that the exchange rate is an important price in an economy, particularly in one as open as ours.
Exports represent about 40 per cent of total Canadian output. And if we add imports, this proportion doubles to 80 per cent. In addition, more than 80 per cent of this trade is with the United States.
So the value of our currency in terms of the U. But we must be careful not to exaggerate this point, because when it comes to exports, we compete with many other foreign countries for a share of the U. And so the exchange rates of those currencies relative to ours also matter a great deal.
Inafter the Second World War, Canada became the first major country to adopt a floating exchange rate. Inwe went back to a fixed exchange rate only to float our currency again in In all, the Canadian dollar has floated for 42 out of the past 50 years.
No other major country has had as much experience with a floating exchange rate. This does not mean that our floating exchange rate regime has somehow outlasted all its critics! For the most part, though, the debate over the years has been about the market value of the Canadian dollar—whether it has floated too high or too low, especially from the viewpoint of certain exporters and importers.
More recently, however, and certainly here in Montreal, some of the discussion has focused more on whether a floating currency is the right exchange rate regime for Canada.Federal Reserve Bank of Kansas City Economic Review, Richard Herring and Robert Litan, Floating Exchange Rates The Only Viable Solution 2 Macquarie University Floating Exchange Rates The Only Viable Solution 2.
9 pages. Floating Exchange Rates The Only Viable Solution Essay Our Lady of The Lake University JMS - Fall Floating exchange rates, he argued, would help insulate the domestic economy from external shocks and would provide national policy authorities the ability to satisfy domestic goals (Friedman The real value of a floating exchange rate for Canada is that it allows us to have different monetary conditions than the United States—monetary conditions appropriate to our own economic circumstances, even as we pursue the same general objective of .
Floating Exchange Rates: The Only Viable Solution For some, the collapse of Mexico's economy proves that floating exchange rates and .
Exchange rates are published daily in the principal newspapers of the world.
By international agreement fixed exchange rates with a narrow margin of fluctuation existed until , when floating rates were adopted that fluctuate as supply and demand dictate.