A little over a year ago, Canadians were alarmed by the surging loonie. As the argument went, foreigners (and Americans in particular) couldn’t afford to buy Canadian-made goods. Since the country couldn’t compete, better get the Bank of Canada on the job and inflate so as to depreciate the dollar. One year on and people got what they wished for. The loonie has lost about 7% of its value against the Greenback, and nearly 15% since 2012. This should be a great stimulus for the economy, right? Wrong. Not only has manufacturing not rebounded from the depreciation, but now Canadians are getting hit hard on everything they import into the country, which for the average Canadian is one out of every three dollars they spend. The Globe and Mail (which less than a year ago was one of the main promoters of the “prosperity through depreciation” argument) has changed its tune.
A money-saving suggestion for Canadians with a taste for travel in the United States: Skip the trip. The Canadian dollar’s descent to five-year lows in early October reminds us that a weak currency has its price. Everything we import from the United States costs more, although intense competition among retailers may limit the impact for a while at least. A more immediate impact is the cost of buying U.S. dollars and paying credit card bills for U.S. purchases. The cheapest vacation of them all is the staycation, where you do all the fun stuff you don’t normally have time for in your hometown. But there’s a certain satisfaction you get from visiting different places that staycations can’t match.
Be careful what you wish for. Just like in other economic matters, depreciating one’s currency is not a panacea. At least Canadians will have lots of time to think about this as they sit at home this coming holiday season. (Cross posted at Mises Canada.)
