The “sky-rocketing” Canadian Dollar
The Canadian dollar has recently reached par with the US dollar. There was much hullabaloo in the Canadian press about the dollar’s growing strength. Being a bit of curmudgeon, I decided to check the historic value of the loonie. I was a little
The Data
Videe Figure 1: Various currencies expressed in terms of the Canadian dollar. The Austrian dollar bubbles around C$1, the euro does the same around C$1.50, and the pound hangs out around C$2.25 (the yen, scaled up 50 times is equally static). Meanwhile, the greenback spends 1997-2003 at about C$1.50, until the start of 2003, when it starts a slow downward slide from C$1.50 to its current value.
Now turn your gaze to Figure 2: The US dollar’s rate from October 1985 to mid-October 2007. A gradual fall from early ‘85, turning around at the start of ‘92, and gradually increasing until about 2003, at which point it slumps to the current value.
Data acquired from the Bank of Canada and OANDA. All rates are interbank rates. Data and scripts used to generate graphs are available for download.
Conclusions
- The Canadian dollar is not increasing in value – the yardstick we measure it against is gradually shrinking.
- While the four currencies shown in Figure 1 seem to be holding their value, the US dollar has lost 30% of its value since 2003.
- For some reason, 2003 seems like a particularly bad year for the US. I wonder what epic screw-up started then and is continuing into the present day?
First, thanks for the interesting article. I see that most analysts are concluding that the Canadian dollar has increased in value, though I haven’t found any real reason for it doing so. What you say makes sense.
The answer to your question is simple: The Federal Reserve has been increasing the supply of money since 2003 (probably an effort on their part to fight inflation). Just look at all the coins they are putting out and the new bills being printed and put into circulation. None of this money has any REAL value to it because it’s not backed by anything and it’s not made from precious metals (U.S. currency is no longer backed by gold).