By Roy L Hales
The Canadian dollar dropped to its lowest exchange rate in eleven years Wednesday. Dr Werner Antweiller, of UBC’s Sauder School of Business, that is because our economy is so focused on the oil sector. Consequently, low oil prices deflate Canada’s petrocurrency.
Consequences of Being A Petrocurrency
“The Canadian dollar is a Petrocurrency, as a result when the oil price goes down so does the Canadian dollar. That’s a result of becoming a much bigger oil exporter than we were in the 1990’s,” Antweiller explained.
“We haven’t become less diversified than ten years ago, it is just that the oil and gas industries have grown in some provinces.”
The economies of oil producing provinces like Alberta, Saskatchewan and Newfoundland are undergoing a strain which is not as pronounced in more diversified areas.
Manufactured goods from Ontario and Quebec are actually receiving a boost in foreign markets.
Of course, imports are more expensive.
Developing A More Diversified Economy
Antweiller said the best way for Canada to develop a more diversified economy is focusing on sectors that require innovation and new technologies
“The key is to invest in human capital and help provinces and people build what we call a knowledge economy,” said Antweiller.
The low Canadian dollar hinders this, in that it makes offers from the U.S. much more attractive.
“When the Canadian dollar was strong, we were able to hire more talent and lure people back to Canada.”
Many of the new businesses, that may help build the next economy, are in urban areas and governments have key role in creating the environments that attract them.
“We have a lot of young talent and young firms that develop these technologies, especially in the renewable energy sector. These are pioneering techologies in the resource sector. We need to create conditions where these companies can grow and succeed,” and Antweiller.
Government can be very helpful during the research and early stages of development.
Meanwhile, Canada’s currency is linked to the fortunes of a single sector – and one that the world is planning to wean itself over the decades to come. The value of our Petrodollar is liable to go through dramatic swings. Antweiller suspects it could take a generation for us to build a strong, diversified, economy.
Top Photo Credit: Canadian Money from KMR Photography (CC BY SA, 2.0 License)