Is Currency Appreciation A Bad Thing For Canada?

Many Canadians are worried about the appreciation of their currency against the dollar. Canada is a currently a net exporter with the U.S. being it’s largest market. As the dollar weakens U.S. consumers and businesses will find it more expensive to import goods and raw materials from Canada. Because of this many Canadians are worried that lower exports will ultimately be a bad thing for Canada and it’s citizens.

The argument that currency appreciation is a bad thing for exports is an argument that is frequently used in the United States to justify the falling dollar. The same economists and politicians that were blind sided by the biggest recession since the great depression, tout that the falling dollar is good for American businesses because it allows them to export more.

As Canada’s loony appreciates and as the dollar falls, there is no doubt that Canada will export less to the United States, but it also means that Canadian citizens and business will be able to consume more of what they produce, due to their increased purchasing power. While there may be a sluggish transition period, ultimately this is a good thing for Canadian’s because it means they’re getting wealthier. A rising currency always goes hand in hand with rising standard of living. By contrast a falling currency always goes hand in hand with reduction in standards of living.

Another benefit from a rising loonie and falling dollar is that Canada will be able to import more things from the United States and other countries. As the Canadian loony gains in strength they will be able to price American’s out of many markets, and many things that now get shipped to the United States for American’s to consume will now get shipped to the wealthier Canadians, where products and services will be exchanged for much stronger loonie.

However, all exporting will not be lost for Canada. Although the loonie has been rising steadily against the dollar, other currencies around the world are just as strong as the loonie. As exports to the U.S. diminish, Canada will find new markets within it’s own boarders, but also abroad, particularly in Asia.

Currency appreciation is never a bad thing. And a falling currency is never a good thing. Canadians should embrace a stronger currency, and enjoy all the benefits that come with. Summer homes in Florida anyone?