Thursday, January 13, 2011

Flaherty: loonie will stay at par with U.S. thanks to "sound" fiscal situation

By Lee-Anne Goodman, The Canadian Press

WASHINGTON - The Canadian loonie will hover at parity with the U.S. dollar for some time to come, and deservedly so thanks to Canada's economic strength, Finance Minister Jim Flaherty said Wednesday.

"This is a new world," Flaherty told reporters after speaking about controlling debt at a think-tank discussion at the Woodrow Wilson International Center for Scholars in the U.S. capital.

The high Canadian dollar reflects a "sound fiscal situation" in Canada, he added.

"It is unreasonable, given those fundamentals, for anyone in Canada to expect the Canadian dollar to go back to the days when it was significantly devalued vis-a-vis the U.S. dollar.... it makes sense for the Canadian dollar to be much closer to the U.S. dollar that it was for some years."

The Canadian dollar hit a two-and-a-half year high earlier Wednesday of $0.9848, or US$1.0154. It closed the day at $0.9869 to the U.S. dollar, or US$1.0133. The loonie's been at or near parity with the U.S. currency for weeks, a state of affairs that causes headaches for Canadian exporters who get paid in American dollars.

That's why Ottawa is throwing a lifeline to exporters and manufacturers by lowering corporate taxes, reducing tariffs and extending an accelerated capital cost write-off, Flaherty said.

The capital cost measure allows companies to accelerate the rate at which they can write off investments. It was scheduled to expire in 2011.

The finance minister spoke to the media after an event that proved something of a Canadian love-in. Those in attendance included Gary Doer, the Canadian ambassador to the U.S., and astronaut Julie Payette, who recently signed on for an eight-month stint as a public policy scholar at the Woodrow Wilson Center.

"We look at Canada as a good example of what we ought to do on several different fronts," David Biette, the director of the centre's Canada Institute, told Flaherty.

The finance minister also said Canada would put global financial standards in place well before deadlines imposed by the Basel Committee of international bank regulators.

The new regulations, dubbed Basel Three, are supposed to be in place by 2019. But Flaherty said Canada will move much faster than that, adding the new rules aren't onerous for Canadian financial institutions since they already practise so many of them.

The new standards would require banks to prepare for economic recessions by holding onto more cash and assets that can be easily sold off. They aim to ensure taxpayers aren't on the hook when a financial institution fails amid a global financial meltdown.

"It's an advantage for our financial system to move more quickly to the Basel III standards," Flaherty said. "It creates more business confidence. It creates more confidence outside of Canada for direct investment in Canada."

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