Dollarization in Canada: the Buck Stops There
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A History of the Canadian Dollar 53 Royal Bank of Canada, $5, 1943 in 1944, Banks Were Prohibited from Issuing Their Own Notes
Canada under Fixed Exchange Rates and Exchange Controls (1939-50) Bank of Canada, $2, 1937 The 1937 issue differed considerably in design from its 1935 counterpart. The portrait of King George VI appeared in the centre of all but two denominations. The colour of the $2 note in this issue was changed to terra cotta from blue to avoid confusion with the green $1 notes. This was the Bank’s first issue to include French and English text on the same note. The war years (1939-45) and foreign exchange reserves. The Board was responsible to the minister of finance, and its Exchange controls were introduced in chairman was the Governor of the Bank of Canada through an Order-in-Council passed on Canada. Day-to-day operations of the FECB were 15 September 1939 and took effect the following carried out mainly by Bank of Canada staff. day, under the authority of the War Measures Act.70 The Foreign Exchange Control Order established a The Foreign Exchange Control Order legal framework for the control of foreign authorized the FECB to fix, subject to ministerial exchange transactions, and the Foreign Exchange approval, the exchange rate of the Canadian dollar Control Board (FECB) began operations on vis-à-vis the U.S. dollar and the pound sterling. 16 September.71 The Exchange Fund Account was Accordingly, the FECB fixed the Canadian-dollar activated at the same time to hold Canada’s gold value of the U.S. dollar at Can$1.10 (US$0.9091) 70. Parliament did not, in fact, have an opportunity to vote on exchange controls until after the war. -
Foreign Exchange and the Canadian Dollar: a Primer Jim Stanford
Foreign Exchange and the Canadian Dollar: A Primer Jim Stanford The Canadian dollar has experienced dramatic fluctuations Why buy and sell foreign exchange? in recent years, rising from a low value of 62 cents U.S. in 2002, to levels that now meet or exceed parity with the U.S. dollar. These There are many purposes for which foreign exchange is required. fluctuations have had tremendous impacts on exports, investment, The most concrete reasons are to pay for imports from another and employment in many Canadian industries and regions. More country, or to visit that country and pay for things while you recently, currency issues have become highly controversial in travel there. Businesses might also need to convert currency in global economic diplomacy, too. For example, conflicts over order to pay for an investment in another country. In less concrete currencies (especially between the U.S. and China) dominated motivations, financial investors could convert currency in order the recent G20 summit in South Korea. Those conflicts were not to purchase financial assets (like bonds or corporate shares) in resolved, and hence uncertainty and conflict over exchange rates another country. In some cases, financiers purchase another will continue to mark much international interchange. nation’s currency purely for the purpose of holding that currency – hoping that its value (relative to other currencies) will increase, What determines exchange rates, and why do they matter? thus generating a speculative profit. This primer introduces some of the key issues and concepts, to help make sense of the volatility. What is the price of foreign exchange? What is foreign exchange? The price of one unit of a currency (say, a dollar) is the amount you must pay in another currency in order to buy it. -
The Canadian Dollar and the Dutch and Canadian Diseases
Volume 6•Issue 30•October 2013 THE CANADIAN DOLLAR AND THE DUTCH AND CANADIAN DISEASES* Serge Coulombe† Department of Economics, University of Ottawa SUMMARY With the spectacular rise of the dollar, along with rising natural-resource prices during the first decade of the 21st century, Canadians heard a great deal about Dutch disease. Many politicians and pundits blamed the phenomenon — in which a country’s currency, inflated by rising commodity prices, renders manufacturing exports increasingly uncompetitive — for rising unemployment in the Canadian manufacturing industry. But a close look at what happened during that period reveals that the Dutch disease mechanism was only part of the story. The other part, and quantitatively the most important, is an affliction of an altogether different providence: Canadian disease. Canadian disease is the economic trouble that can be caused by Canada’s extraordinarily heavy reliance on the United States as a trading partner. As a consequence, a sudden depreciation of the U.S, dollar will deteriorate the competitiveness of Canadian manufacturing exporters. Such a phenomenon was at work during the “Great Appreciation” of the Canadian dollar between 2002 and 2008 — the largest such appreciation on record in this country. The depreciation of the U.S. dollar is a phenomenon that is independent of the resource boom and the resulting consequences on the Canadian economy cannot be endorsed to a Dutch disease. Almost 2/3 of the employment losses that are exchange rate related in the trade-exposed manufacturers in Canada during the 2002–2008 period could be attributed to the Canadian disease. The Canadian dollar is partly driven by commodity prices, and the appreciation of the Canadian dollar exerts a negative impact on manufacturing industries that are exposed to international competition. -
Currency Substitution: the Use of Hong Kong Dollars in Southern China
Journal of Economic Integration 17(3), September 2002; 596-607 Currency Substitution: The Use of Hong Kong Dollars in Southern China Kui Yin Cheung and Chengze Simon Fan Lingnan University Abstract This paper studies the circulation of Hong Kong dollars in the Chinese Mainland. It first estimates the amount of Hong Kong dollars circulating in southern China in the last fifteen years. The regression analysis indicates that the growth rate of Hong Kongs foreign direct investment in China and the growth rate of trade volume between Hong Kong and China are some of the main determinants that contribute to the widespread use of Hong Kong dollars in southern China. The difference of real returns between Hong Kong dollar denominated assets and Chinese Renminbi denominated assets, however, has no effect on the amount of Hong Kong dollars circulating in China. • JEL Classifications: E41, F36 • Key Words: Currency Substitution, Hong Kong Dollars, Hong Kong I. Introduction Currency substitution is an important issue in international macroeconomics because it is often regarded as a major contributing factor in the economic interdependence of countries. For instance, currency substitution has important impact on the exchange rate (McKinnon, 1982). In the face of exogenous changes in the expected rate of depreciation, Girton and Roper (1981) show that the exchange rate volatility increases with the degree of currency substitution. Furthermore, currency substitution may transmit the effect of monetary disturbances from one country to another (Miles, 1978). This paper attempts to *Corresponding address: Kui Yin Cheung, Department of Economics, Lingnan University, Tuen Mun, N.T., Hong Kong, Tel: +852-2616 7187, Fax: +852-2891-7940, E-mail: [email protected] 2002-Center for International Economics, Sejong Institution, All Rights Reserved. -
A Model of Currency Substitution in Exchange Rate Determination, 1973-78
A Model of Currency Substitution in Exchange Rate Determination, 1973-78 ARTURO BRILLEMBOURG and SUSAN M. SCHADLER * д т THE OUTSET of the current floating exchange rate regime, jfTi expectations were widespread that the new system would allow countries a high degree of policy independence yet reduce strains on the free international movement of goods, services, and capital. Even long-standing critics of exchange rate flexibility seemed unable to oppose meaningfully the advent of flexible exchange rates in the face of the severe strains of reserve changes and international payments imbalances. Domestic financial pol- icies and economic performance in the major industrial countries had diverged to such an extent that fixed relationships among currencies were obviously unfeasible. After several years' experience with floating exchange rates, however, it is far from clear that exchange rate flexibility enhances the ability of coun- tries to pursue their own chosen policies without contributing to severe disruptions in the international monetary system. In fact, as experience with the regime grows, a number of the fun- damental tenets of flexible exchange rate advocates are being called into question. The long-standing case for floating exchange rates has centered principally around the argument that exchange rate flexibility allows individual countries to choose financial policies indepen- dently while removing the burden of intervention on those coun- * Mr. Brillembourg, economist in the Special Studies Division of the Research Department, is a graduate of Harvard University and of the University of Chicago. Ms. Schadler, economist in the Special Studies Division of the Research Department, holds degrees from Mount Holyoke College and the London School of Economics and Political Science. -
The Implications of Currency Substitution Experiencesin Latin America and in Eastern Europe for Cuba
The Implications of Currency Substitution Experiencesin Latin America and in Eastern Europe for Cuba Lorenzo L. Pérez. International Monetary Fund [1] I. Introduction This paper assesses the experience of dollarization and currency substitution in Latin America and in Eastern Europe and analyzes the implications of this phenomena for Cuba. Under conditions of high inflation, the ability of national currencies to function adequately as a store of value, a unit of account, and a means of exchange is hindered. In these circumstances, the domestic currency tends first to be displaced as a store of value by a stableand convertible currency (usually in the form of interest-bearing foreign currency deposits); this phenomenon is known in the literature as dollarization.[2] Long periods of high inflation induce the public also to conduct transactions in foreign currency, a process which is usually referred in the literature as currency substitution. Both types of experiences are occurring in Cuba. SectionII summarizes the measures taken by the Castro Government to allow the circulation of freely convertible currencies (mostly U.S. dollars) in Cuba. SectionIII discusses the reasons of why dollarization and currency substitution take place, and the form and extent that it has taken place in Latin America and European countries. SectionIV discusses the advantages and disadvantages of allowing a foreign currency as legal tender. SectionV draws conclusions from the experience of other countries for Cuba's recent dollarization and currency substitution developments and the implications for the future. II. Cuba's Experience with Dollarization and Currency Substitution Prior to the summer of 1993, U.S. -
The Catalogue of Bronze Coinage of New Brunswick and Nova Scotia
The Catalogue of Bronze Coinage of New Brunswick and Nova Scotia T. Schumann First Edition - 2021 New Brunswick The New Brunswick dollar's exchange rate was, like the Canadian dollar, $1 to the US dollar (p123, Haxby & Wiley, Coins of Canada, 1984), and $4.86⅔ to the British pound (p14, Haxby & Wiley, Coins of Canada, 1984). This meant that one cent was worth slightly less than a British halfpenny. HALF CENT The New Brunswick half cent was never ordered as the exchange rate did not necesitate it - rather, the Royal Mint accidentally produced the coins assuming that they were required like in Nova Scotia. Some are believed to have been shipped to Halifax though most were destroyed at the Royal Mint once the mistake had been discovered. The New Brunswick half cent was struck the same size as the British farthing and the obverse dies used were British farthing obverse dies. Obverse Details Use Reference Reverse Details Use Reference 1 Design: Portrait of Queen 1861 Freeman 3 A Design: A crown with the date 1861 Victoria surrounded by the Gouby C below, surrounded by a wreath of legend VICTORIA D:G: BRITT: Peck 3 roses and mayflowers with the REG: F:D: and 137 rim denomination HALF CENT denticles. above and NEW BRUNSWICK Designer: Leonard Charles Wyon below Engraver: Leonard Charles Designer : Horace Morehen Wyon Engraver: Specifications Composition Details Use Dimensions Details Use 1 Cu: 95% 1861 A Mass: 2.79g 1861 Sn: 4% Diameter: 20mm Zn: 1% Edge: plain Year Reverse Obverse Mint Mark Mintage Number Reference Year Reverse Obverse Mint Mark Mintage Number Reference 1861 Royal Mint, 222,800 NB.½C.1861.L.1A/1A London ONE CENT The New Brunswick one cent was struck the same size as the British halfpenny and the obverse dies used were British halfpenny obverse dies. -
Internationalisation of the Renminbi
Internationalisation of the renminbi Haihong Gao and Yongding Yu1 Introduction Over the past three decades, China’s fast economic growth and its increasing economic integration with the world have led to a significant increase in its influence in the world economy. During the Asian financial crisis of 1997–98, China was praised as a responsible country, because of its efforts in maintaining the stability of the renminbi while many other countries in the region had devaluated their currencies. It was the first time that China itself, as well its Asian neighbours, started realising China’s emerging influence. Like it or not, China is no longer an outsider in global financial events. This is not only because China is now the world’s third largest economy and second largest trading nation, but also because it holds the largest amount of foreign reserves in the world. Since the Asian financial crisis, China has been faced with three major tasks with regard to its international financial policies. The first is the reform of the global financial architecture. The second is the promotion of regional financial cooperation, which consists of two components: the creation of a regional financial architecture and the coordination of regional exchange rate arrangements. The last is internationalisation of the renminbi. It is fair to say that, over the past 10 years or so, the most discussed issue in China has been regional financial cooperation. Although the result is still highly unsatisfactory, together with its East Asian neighbours China has achieved some tangible results, built on the basis of the Chiang Mai Initiative (CMI). -
A Study of the Internationalization of the Chinese Renminbi ——To Access Its Risks
A Study of the Internationalization of the Chinese Renminbi ——to access its risks Number of keystrokes:96896 ! Master Thesis by: Supervised by: Youran Wang Bill Liu Jesper Willaing Zeuthen May 2018 Aalborg University, China and International Relations Abstract Since 2009, the People's Bank of China has focused on the liberalization of trade and investment, establishing a policy framework to facilitate international use of renminbi. On October 1, 2016, the RMB was formally included in the SDR currency basket of the International Monetary Fund. This is an important milestone in the process of RMB internationalization. However, over the past two years, the global use of renminbi as a payment currency has declined. Fitch Ratings suggests that China’s policy of restricting capital outflows and global concerns about the devaluation of renminbi impede the internationalization of the currency in the short term. From the end of last year 2017, things have changed. The cross-border use of renminbi has been expanded, and new progress has been made in the internationalization of renminbi. There are several factors that promote renminbi internationalization in the long term. The “One Belt and One Road” initiative suggests global participants also cooperates in the increased international use of RMB. The Renminbi Cross-Border Payment System (CIPS) promoted the opening of China's capital market and brought more opportunities for RMB product innovation in the global markets. Hong Kong RMB offshore financial center continues to develop and serve as an intermediary for RMB to go to globe. According to SWIFT, 49.4% of renminbi payment transfers through Hong Kong. -
Money and Monetary Policy in Canada
MONEY AND MONETARY POLICY IN CANADA MODULE 8: EXCHANGE RATES . “Money and Monetary Policy In Canada” by Gary Rabbior A publication of the Canadian Foundation for Economic Education Supported by the Bank of Canada Telephone 1-888-570-7610 110 Eglinton Ave. W. Suite 201 www.cfee.org Fax 416-968-0488 Toronto, ON, M4R 1A3 [email protected] TABLE OF CONTENTS Contents 8.1 The International Exchange of Currencies ______________________________________ 1 8.2 The Exchange Rate _______________________________________________________ 3 8.3 Canada's Economy—Relatively Open and Relatively Small ________________________ 6 8.4 Who Buys and Sells Canadian Dollars? ______________________________________ 10 8.5 Factors Influencing the Buying and Selling of Our Dollar __________________________ 12 8.6 Should One Canadian Dollar Equal One U.S. Dollar? ____________________________ 19 8.7 The Bank of Canada and the Exchange Rate __________________________________ 21 8.8 Fixed Versus Flexible Exchange Rates _______________________________________ 22 Pg. 01 8.1 THE INTERNATIONAL EXCHANGE OF CURRENCIES 8.1 THE INTERNATIONAL EXCHANGE OF CURRENCIES The Value of Our Money Is Important to Canadians Canadians have a keen interest in the value and purchasing power of their money. Its value affects our ability to buy goods and services produced here at home. Canadians also buy goods and services from other countries. They don’t usually buy them directly from foreign producers—although that is becoming much more common with online shopping. But they do buy imported goods from retailers in Canada who bought them from foreign producers. Either way, Canadians spend a lot of money on imported goods and services. Economic Why Do Canadians Buy Goods and Services Produced in Insight: why Other Countries? Canadians buy There are various reasons why Canadians buy goods and services produced in other countries, such as: goods and services from • Some goods—for example, bananas—are simply not produced here in Canada. -
Horizons US Dollar Currency ETF (DLR; DLR.U)
Horizons US Dollar Currency ETF (DLR; DLR.U) The Only U.S. Dollar Currency ETF in Canada ETF Snapshot The Horizons US Dollar Currency ETF (“DLR”) seeks to reflect the price, in Canadian dollars, of the U.S. dollar, net of expenses, by investing primarily in U.S. cash and cash equivalents. Name: The U.S. dollar denominated version of this ETF, (“DLR.U”) has the same investment objective Horizons US Dollar Currency ETF but is priced and transacted in U.S. dollars. Launch Date: Invest in the Direction of the U.S. Dollar April 6, 2011 The relative value of the U.S. dollar to the Canadian dollar is an important consideration for Canadian investors. Many goods and services that Canadians use are in fact sourced in U.S. Ticker: dollars.Therefore, when the value of the Canadian dollar declines it usually means the real DLR; DLR.U (U.S. dollar purchasing power of a Canadian dollar denominated portfolio declines. denominated units) DLR offers a unique opportunity for investors to capture the positive performance of the Bloomberg Index Ticker: U.S. dollar versus the Canadian dollar. USDCAD When the U.S. dollar appreciates relative to the Canadian dollar (i.e. the U.S. dollar/Canadian Management Fee:1 dollar exchange rate increases), the value of DLR is expected to increase proportionately. 0.45% Conversely, when the U.S. dollar depreciates against the Canadian dollar (i.e. the U.S. Investment Manager: dollar/Canadian dollar exchange rate decreases), the value of DLR is expected to decrease Horizons ETFs Management proportionately. -
The Canadian Dollar Under the Gold Standard
The Canadian Dollar under the Gold Standard Canada, $10, 1912 Although Newfoundland issued gold coins as early as 1865, the Dominion of Canada did not do so until 1912–14, when (1854-1914) the recently established Royal Mint in Ottawa struck $5 and $10 pieces. When the redemption of Dominion notes into gold was suspended at the beginning of the First World War, the production of Canadian gold coins ceased. Operation of the gold standard export or import of gold. This implied that there was virtually no scope for the authorities to manage From 1 August 1854 when the Currency the exchange rate or to conduct an independent Act was proclaimed, until the outbreak of World monetary policy.52 War I in 1914, the Province of Canada, and subsequently the Dominion of Canada, was Fluctuations in market exchange rates continuously on a gold standard. Under this between the Canadian dollar and the U.S. dollar and standard, the value of the Canadian dollar was fixed the pound sterling, respectively, around their in terms of gold and was convertible upon demand. official values were generally limited by the gold It was also valued at par with the U.S. dollar, with “export” and “import” points. These points marked a British sovereign valued at Can$4.8666. As noted earlier, both U.S. and British gold coins were legal the exchange rates at which it was profitable for tender in Canada. individuals to take advantage of price differences between the market and official exchange rates With the gold standard in place, monetary through the export and import of gold from policy was largely “on automatic pilot.” Paper the United States or the United Kingdom.