Restrict foreign resource takeovers

Cahier spécial : A policy vision to escape the race to the bottom


INTERVENE TO REDUCE THE CANADIAN DOLLAR EXCHANGE RATE (2)

Slowing down resource developments (especially in the oil sands)

The link between world oil prices and the Canadian dollar was firmly established beginning at the turn of the century, when Canada’s oil sands juggernaut (and associated inflows of foreign capital) first began to accelerate.

Rightly or wrongly, currency speculators now associate our dollar with oil wealth – even though our national trade balance has actually deteriorated during this period.

Establishing a more reasonable pace of resource development, especially in the oil sands, would be beneficial for reigning in the currency (not to mention or environmental and social reasons, too, in order to better manage the significant costs of that unplanned, overheated development boom).

Preventing foreign takeovers of Canadian resource assets

A dominant factor behind the strong dollar has been the dramatic upsurge in foreign takeovers of Canadian resource companies (and hence the resource assets which those companies control).

Perhaps the most potent policy lever which government could use to bring down the currency would be to restrict foreign resource takeovers, hence reducing the inflow of hot foreign capital associated with those takeovers. More important, there would be a structural break in the expectations of foreign investors regarding the relationship between oil prices and our domestic financial assets.

After all, Canada is unique among major petroleum exporters in allowing virtually unlimited foreign ownership of this non-renewable resource. So the appetite of foreign investors for Canadian assets is whetted all the further (since other petroleum exporters strictly restrict foreign ownership of the asset). Signalling that Canada’s petroleum resources are off-limit to foreign takeovers would immediately shift investor perceptions of future movements in the Canadian dollar.

The traditional argument against pro-active efforts to depreciate the currency are that it would spur domestic inflation. This argument is not credible in light of the experience of recent years. The sharp appreciation of the currency did not cause a deceleration of inflation in Canada, since importers failed to proportionately pass through their savings to Canadian consumers. (This is precisely why the overvaluation of the dollar according to PPP criteria has continued unabated.) Canadian inflation has in fact exceeded U.S. inflation in most years since the financial crisis (implying a reduction in the PPP exchange rate). Undoing that appreciation can hardly be expected to cause a surge in inflation. Neither would Bank of Canada actions to increase the supply of Canadian dollars to foreign currency markets. Those owners of Canadian dollar assets are holding them for speculative reasons, not to purchase Canadian-made goods and services. The primary monetary determinant of Canadian inflation will continue to be the pace of domestic credit creation. So long as most of our economy remain mired in stagnant economic conditions, no inflation surge can be anticipated.


 

Tables des matières

1.       A policy vision to escape the race to the bottom

Summary :

Global pressures on the industry are more severe all the time

Impacts of a Canadian dollar

we must adopt a new approach

2.       Decline in auto manufacturing employment in Canada

To Hell and Back – Canada’s Auto Industry After the Crisis

Industrialized countries experienced a decline

Preventing plant closures

Government intervention

3.       Automotive trade deficit reached an all-time record of $15.6 billion

Auto  Industry - Free Trade

Canada-U.S. Auto Pact

World Trade Organization

Trade Balance

Mexico

4.       CANADIAN Petro-Dollar

CANADIAN Petro-Dollar

5.       Race to the bottom

Race to the bottom

Donc, à qui profite la mondialisation ?

Les gagnants

6.       Productivity, Investment and Technology

Productivity, Investment and Technology

Productivity

Investment and Technology

7.       Center of gravity is clearly shifting south

Re-thinking Canada’s : A New Policy Vision

And it won’t stop there

We do not accept this grim scenario as natural, efficient, or inevitable.

8.       Free trade theories failures

Re-think Trade Policy

With every other trading partner

Optimistic predictions of the free trade theories failures

Canadian trade negotiators have a responsibility

9.       The Bank’s power to bring down the dollar is unquestioned

Intervene to Reduce the Canadian Dollar Exchange Rate (1)

Canadian dollar r far above value

Theory freely floating exchange failures

Bank of Canada interventions.

10.    Restrict foreign resource takeovers

Intervene to Reduce the Canadian Dollar Exchange Rate (2)

Slowing down resource developments (especially in the oil sands)

Preventing foreign takeovers of Canadian resource assets

11.    Canada back is a lack of political creativity

Conclusion

Willingness by policymakers to play an active role.