Don't blame Canada's export woes on strong Canadian dollar: BoC chief

Wed Aug 22, 2012 2:30pm EDT
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By Allison Martell

TORONTO (Reuters) - Canada cannot devalue its way to prosperity or blame weak exports solely on the strong Canadian dollar, the head of the Bank of Canada said on Wednesday.

Speaking to an auto union that blames the strong dollar for higher costs for car makers, Governor Mark Carney noted that Canada's export performance over the last decade has been the second worst in the G20 grouping of major and emerging nations.

"Some blame this on the persistent strength of the Canadian dollar. While there is some truth in that, it is not the most important reason," he told the Canadian Autoworkers Union, describing over-exposure to the mature and sluggish U.S. market as a more important factor.

He said the currency accounted for only about 20 percent of Canada's poor export performance.

"We cannot devalue ourselves to prosperity or cut ourselves off from the world and hope to rely on ever-increasing borrowing by Canadian consumers," he said.

The CAW has been a tough critic of the strong Canadian dollar, arguing that it inflates the labor cost of making cars in Canada. The union is in contract talks with the Big Three Detroit car companies, seeking a share in the companies' new profitability.

Carney's speech was believed to be the first to the CAW by a Bank of Canada chief. CAW President Ken Lewenza, while telling Carney that the union disagreed with his policy, warmly welcomed him and asked him to sign up his four daughters as union members.

Carney said the Bank of Canada watches the dollar's level as it sets monetary policy, but added that a dramatic shift in the currency's value might not have as much of an impact as some would expect.   Continued...

Bank of Canada Governor Mark Carney listens to a question during a news conference upon the release of the Monetary Policy Report in Ottawa July 18, 2012. REUTERS/Chris Wattie