Raymond Garneau Opposes a Common Currency with The United States
Mr. Garneau´s speech (in French, 34KB PDF)
In his first speech since he announced his retirement as chief executive officer of Industrial-Alliance Life Insurance Company, Raymond Garneau voiced his opposition to the establishment of a common currency with the United States.
"Not only is the establishment of a common currency with the United States not viable on the political front, but such a measure could have a negative impact on Canada´s economy," declared Mr. Garneau to the members of the Quebec chapter of the Montreal Society of Financial Analysts.
Mr. Garneau, who continues to act as chairman of the board of Industrial-Alliance, does not see how, on the political front, Canada and the United States would agree to abandon their respective dollars to adopt a new common currency. "To abandon one´s currency," explained Mr. Garneau, "is to abandon part of one´s sovereignty. I don´t think the United States would agree to abandon a part of their sovereignty to create an "americo" which would be the euro´s counterpart, with a country that is many times smaller than their own."
Mr. Garneau estimates that "if there were a possible path, it would be for Canada to adopt the U.S. dollar and negotiate representation in the Federal Reserve Bank where, at best, we would be given nominal representation, because the United States would never agree to be on equal footing with Canada."
The other possibility, according to Mr. Garneau, would be to have a permanent and fixed exchange rate between the U.S. dollar and the Canadian dollar. "This option would require the creation of an exchange stabilization fund which would have the solid footing needed to handle upheavals," Mr. Garneau commented. The former Prime Minister of Canada, John Diefenbaker, learned this at his own expense when he was forced to devaluate the Canadian dollar by 8% at the beginning of the 1960s, after having bled the exchange stabilization fund dry."
On the economic front, Mr. Garneau believes that in general, the current flexible exchange rate system has served Canada well. "In spite of the strong movements toward economic and financial integration with our powerful neighbour, we have let the Canadian dollar´s exchange rate float freely compared to the U.S. dollar for 42 of the last 50 years, and the Canadian economy is still among the most prosperous on the planet," underlined Mr. Garneau.
To support his arguments, Mr. Garneau referred to a recent study by the C.D. Howe Institute, which states that Canada would have probably gone into a recession in 1998 if it had been under a fixed rate regime, due to the financial upheavals that followed the Asian crisis in 1997, affecting the price of raw materials, among other things. "Would we have been able to resist the pressure of the foreign exchange traders without devaluing our dollar?" Mr. Garneau asked.
Mr. Garneau sees the floating exchange rate as another way to regulate the economy. In this sense, he agrees with the C.D. Howe study which indicates that: "If Canada´s nominal exchange rate were fixed, other variables – such as money wages and prices, not to mention output and employment – would have to absorb the effects of commodity price fluctuations."
Our floating exchange rate regime has another important advantage, according to Mr. Garneau, which is the ability to dictate a monetary policy independent from that of the United States. "Renewed credibility on the budget front allowed the Bank of Canada to pursue its own objectives and lower its discount rate, in 1996 and 1997, to much lower levels than the U.S. Federal Reserve," Mr. Garneau concluded.
Raymond Garneau was Minister of Finance and President of the Treasury Board of Quebec from 1970 to 1976. In 1980, he was appointed Chairman of the Board and Chief Executive Officer of the Montreal City and District Savings Bank, now known as the Laurentian Bank. Mr. Garneau was also MP for the Laval-des-Rapides riding in the House of Commons, in Ottawa, from 1984 to 1988. He joined Industrial-Alliance at the end of 1988, where he eventually became Chairman of the Board and Chief Executive Officer. On May 2, Mr. Garneau announced his retirement from Industrial-Alliance´s management, where he continues to act as chairman of the board of directors.
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