Sunday, March 05, 2006

Strong Canadian dollar - time to negotiate currency union

The irony of the moment for Canadians is likely lost on all but the most ardent advocates for currency union. But for those that see the ultimate forces toward union inevitably at work, the current commodity cycle is both beauty and bane. Yes, the heightened demand for commodities has elevated the loonie back toward respectability as the balance of trade clearly indicates the ascendancy of our resources. And the prospect for continuation of this bullish trend in energy and mineral markets is notably positive. But as the loonie now approaches 90 U.S. cents Canadian nationalist sentiment swaggers. Thoughts of weakness are long lost. No fear of depreciation here, not like a short few years ago when a 50 cent dollar seemed imminent.
Unfortunately, it is lost upon policy makers now that the time to negotiate is in times of strength. When businesses seek merger opportunities they do so when their stocks are strong. It makes for a much better deal for the shareholders. So too for the Canadian shareholders. Far better that Canada parlay the current business cycle into a favourable currency union agreement now. The terms of the merger, likely dollarization, are favourable enough now to enable a smoother transition for the regional economies of Canada. Ontario, specifically, would benefit from the timing of a currency agreement now. Unfortunately, the political vision, the political will, is no where to be found. Too bad.

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