OTTAWA – Bank of Canada governor Mark Carney warns the Canadian economy would suffer from a currency exchange war — a battle the G7 has pledged not to engage in.
Carney tells a parliamentary committee in Ottawa that as a smaller economy, Canada does not have the flexibility of the United States and it would be futile for him to seek to manipulate the level at which the loonie is traded.
Before his appearance Tuesday morning, the Group of Seven leading industrial nations, which includes Canada, warned that volatile movements in exchange rates can adversely hit the global economy.
The G7 statement urges countries to set monetary policy to meet local economic targets and not to engage in a currency war through the manipulation of their currencies in order to boost exports at the expense of others.
Carney says at best, manipulating the currency works only in the short term. Eventually the economy must adjust through lower wages for the country’s workers, something he says parts of Europe are currently experiencing.
More generally, Carney says he believes the weakness in the Canadian economy during the latter half of last year was partly due to temporary factors.
Importantly, he believes the external risks to the global economy going forward have diminished and that Canadian growth will pick up pick up steam this year.
On a related issue, Carney says he believes the record discount on the price Alberta producers are paid for Canadian crude is due to refinery and pipeline bottlenecks, not to lower demand for crude in the U.S.