Unnerved by the tremendous appreciation in its nation’s currency, Canada’s Parliament is officially mulling the possibility of pegging the Loonie to the USD. It’s unclear at what value the two currencies would be linked, perhaps at parity. However, in testifying before Parliament, the future leader of the Bank of Canada argued staunchly against such an exchange rate regime. Such a relationship, he warned, would cripple Canada’s ability to conduct monetary policy, independent of the US. So long as the Loonie remained fixed to the Dollar, Canada would be forced into mirroring US interest rate movements. Because of several fundamental differences in their respective economies, it seems unlikely that this policy will be implemented. The CanWest News Service reports:
"It would mean that, de facto, Canada would adopt U.S. monetary policy, despite the reality that the structures of our economies are very different and, as a consequence, often require different types of adjustments in response to global developments."
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