Canada: Pushed to Par

Last week Canada’s dollar slid almost to par with that of the U.S., its lowest point in 4½ years, and U.S. visitors could spend their money without discount at department stores from Montreal to Vancouver. The currency decline may touch Canadian national pride, but it is just what the financial doctor ordered. In his interim budget, Finance Minister Donald Fleming announced his intention to realign the nation’s lopsided balance of payments with the U.S. by imposing heavy taxes on U.S. investors. As to the effect on the dollar, Fleming reasoned that more taxes will dampen U.S. enthusiasm for Canadian stocks and bonds, thus make Canadian money more plentiful, and hence cheaper, on the New York money market. The effect on trade, with the dollar at parity, will be to make Canadian goods cheaper; exports should increase and bring the U.S.-Canadian trade deficit into closer balance.

Actually, Fleming did not have to push very hard. Though Canada’s dollar hit a record high of $1.06 to the U.S. dollar in August of boom year 1957, it has been in slow decline since then. Since mid-1960, when a business slowdown was unmistakably felt in both nations, U.S. interest in Canadian investments waned to the point where the dollar dropped to $1.02 just before Fleming outlined his high-tax prescription fortnight ago.