The Sturdy Dollar

Canadians last week enjoyed the mixed blessing of having the world's hardest currency. A brisk international demand pushed the dollar to an alltime high of $1.0611 U.S., bringing joy to Canadian importers, dismay to exporters, and concern to the nation's money managers.

Canada's dollar has always held close to the U.S. dollar -in value. Soon after Canada rejected the sterling system in 1853 to adopt a decimal-based monetary system, the government pegged its dollar on a par with the U.S. dollar. Later, Canadian money was freed to find its own level. In 1940 the dollar dropped to a low of 78 U.S. cents; as World War II progressed, Ottawa pegged its dollar at 90-c-. After Canada dropped all monetary controls again in 1950, the Canadian dollar began its slow rise to last week's high.

Cross-Country Effect. The effects of the rate touched all of Canada. In Montreal a spokesman for the Canadian Pulp and Paper Association, whose members sell newsprint for U.S. dollars, complained that the "abnormal and artificially high value of the Canadian dollar" had created an "urgent and pressing problem" for ex port industries, which still must pay their domestic costs in high-priced Canadian dollars. In Alberta cattle growers found the interest of U.S. buyers waning in the face of a 6% exchange tab.

But the differential proved a bonanza to such importers as Sandy Glass, who runs a Toronto steel warehouse. Said he: "I've quoted prices on a basis of $5 a ton profit, knowing I'll get an extra 5 1/2% or 6% on the exchange because most of our steel comes from the States."

Supply & Demand. Economists had a ready explanation for the demand for the Canadian dollar: heavy foreign investments in Canadian securities. But Canada's tight-money policies also figured in the climb. Last week the Royal Bank of Canada and the Bank of Montreal increased their prime rate--the interest rate on high-grade business loans--to 5 3/4% (v. 4 1/2% in New York). The rise will drive more Canadian borrowers to the New York money markets for funds, and with their borrowed U.S. dollars, they will help bid up the price of Canadian dollars.

The incoming investments mask Canada's unfavorable balance of trade ($849 million last year) and even aggravate it by forcing up the dollar's value, thus encouraging imports and making exporters' competition for world markets more difficult. The country's money managers are worried that trade may freeze in this pattern. Yet the alternatives are scarcely inviting. Discouraging foreign investment might touch off a recession. If Canada tried to peg its dollar at a lower level, it would redouble the incentive of foreign capital to invest. And it is questionable whether Canadian taxpayers would willingly finance a costly stabilization plan certain to cause higher prices at home.

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