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Canadian Dollar Overvalued By 10 Per Cent, World Economics Says. (FULL ARTICLE)
The Canadian dollar is suffering from overvaluation, according to a new measure of global currencies’ value.
The loonie is 10.1 per cent stronger than it should be when comparing the cost of a basket of goods here and in the U.S., according to analysts at World Economics who are testing out a new measure to compare prices worldwide.
What this means is that the loonie would have to be 10 per cent lower for goods to cost the same in Canada as they do in the U.S.
The estimate agrees almost perfectly with an analysis from BMO Capital Markets, released last week, that shows prices in Canada are about 10 per cent higher than they are in the U.S. However, that actually marked a narrowing of the gap, from around 14 per cent in May of 2012.
But Canada’s high-flying dollar is still not as overvalued as currencies in some other countries. The euro in France is overvalued by 28 per cent, when looking at the cost of goods in that country. At the other end of the spectrum is India, whose rupee is undervalued by about 45 per cent, the survey found….
- Loonie is overvalued, true value is under 88 cents US, index says (business.financialpost.com)
- Canadian dollar overvalued by 10%, new measure shows (theglobeandmail.com)
- Canadian Dollar Reaches 1-Week High on Plan to End U.S. Shutdown (bloomberg.com)
- Canadian Dollar Finishes Smooth Before September Tasks Information on Friday (torontocurrencyexchange.wordpress.com)
We use the term “reserve currency” when referring to the common use of the dollar by other countries when settling their international trade accounts. For example, if Canada buys goods from China, it may pay China in US dollars rather than Canadian dollars, and vice versa. However, the foundation from which the term originated no longer exists, and today the dollar is called a “reserve currency” simply because foreign countries hold it in great quantity to facilitate trade.
The first reserve currency was the British pound sterling. Because the pound was “good as gold,” many countries found it more convenient to hold pounds rather than gold itself during the age of the gold standard. The world’s great trading nations settled their trade in gold, but they might hold pounds rather than gold, with the confidence that the Bank of England would hand over the gold at a fixed exchange rate upon presentment. Toward the end of World War II the US dollar was given this status by international treaty following the Bretton Woods Agreement. The International Monetary Fund (IMF) was formed with the express purpose of monitoring the Federal Reserve’s commitment to Bretton Woods by ensuring that the Fed did not inflate the dollar and stood ready to exchange dollars for gold at $35 per ounce. Thusly, countries had confidence that their dollars held for trading purposes were as “good as gold,” as had been the Pound Sterling at one time.
However, the Fed did not maintain its commitment to the Bretton Woods Agreement and the IMF did not attempt to force it to hold enough gold to honor all its outstanding currency in gold at $35 per ounce. The Fed was called to account in the late 1960s, first by France and then by others, until its gold reserves were so low that it had no choice but to revalue the dollar at some higher exchange rate or abrogate its responsibilities to honor dollars for gold entirely. To it everlasting shame, the US chose the latter and “went off the gold standard” in September 1971….
- China’s Official Press Agency Calls For New Reserve Currency, And New World Order (ncrenegade.com)
- Health of Dollar Is Deteriorating (venitism.blogspot.com)
- Must-Listen: Ron Paul’s 2006 Speech: ‘The End Of Dollar Hegemony’ (Video) (infiniteunknown.net)
- The End of Dollar Dictatorship? (txwclp.org)
I just wanted to repost a commentary I wrote about this time last year and sent to a couple of Canadian media outlets (Toronto Star, Globe and Mail, National Post) for ‘publication.’ It was not published by any but it seems as relevant today, if not more so, as it did last summer:
- Canadian Billionaire Predicts The End Of The Dollar As Reserve Currency; Warns “It’s Likely To Get Ugly” (zerohedge.com)
- Why conservatives spin fairytales about the gold standard (blogs.reuters.com)
- Is The Fed Ready To Cut America’s Fiat Life Support? (personalliberty.com)
- Jim Rickards on a Return to a Gold Standard: “The Dollar is Definitely Collapsing”!! (socioecohistory.wordpress.com)