The Canadian experience of the exchange rate is the most relevant element of the country’s economic structure in the period under review. Indeed, on September 30, 1950, due to massive capital imports, the Canadian authorities ceased to maintain the existing parity, which was 1.10 Canadian dollars to one US dollar, and immediately the Canadian dollar, which had become floating, showed a trend on the upside and in February 1952 made a premium on the US dollar. Then, for about eight consecutive years, from 1952 to the early 1960s, it continued to fluctuate with small variations that never exceeded 6% and which, in general, remained between 2 and 4%.
On May 2, 1962, the Minister of Finance put an end to this “free” foreign exchange market, with the official fixing of the new Canadian dollar parity of 1.08 Canadian dollars to one US dollar. This value was established with the approval of the International Monetary Fund (IMF) and, in accordance with the provisions of this body, the Canadian government undertook to keep the exchange rate of the Canadian dollar within the limits of 1% higher or less than the established par value.
Several reasons have been proposed to explain this lasting stability of the Canadian dollar during this first period of fluctuation: the tendency of capital imports to accompany imports of goods, the tendency of the Canadian economy’s cyclical movements to coincide with those of the US economy., the fact that other currencies, during the Canadian dollar’s fluctuation period, had a fixed parity, the balancing effects of short-term private capital movements, and finally the common view that the Canadian dollar had, in the long run, a sort of “natural parity” with the American one.
According to Ebizdir, the memory of the successful outcome of the floating period led the Canadian government to announce on May 31, 1970 its decision to no longer keep the Canadian dollar rate within the 1% limit prescribed by the IMF, thus reverting to an exchange rate system. flexible that still lasts.
In recent years, Canada has suffered the inflationary squeeze of the recessionary cycle. It is largely due to external factors, although internal tensions arose in 1974, such as the considerable increase in labor costs, correlated to a low rate of increase in productivity, attributable in part to strikes associated with contract renewals and partly due to the indebtedness of both domestic and foreign demand.
Prices, for the same period, have increased at a rate significantly above 10% per annum, and, although the average increase in real production is in the order of 2% per annum, rates of return have increased annually by an average of 15%. % and more, and many wage agreements provide for an even greater increase.
Over the last few years, the situation of the external accounts has radically transformed. The $ 5.4 billion deficit recorded in 1975 contrasts sharply with the surpluses of the early years of the decade. The deterioration that occurred in 1975 was largely due to the change in the trade balance, from a $ 1.5 billion surplus in 1974 to a $ 0.8 billion deficit, while the services and transfer deficit increased by 1.1 billion, equal to the sum of the previous three years. In fact, the world recession in 1975 resulted in a considerable decrease in the volume of international trade, which Canada has suffered the repercussions. Exports, in volume, decreased by 7% compared to the previous year, while the reduction in the volume of imports was more moderate, 5%. At the same time, the increase in export prices from 1974 to 1975 was 10%, therefore much more modest than that of import prices, which reached 16%. This price increase is especially relevant for commodities, which are a strong component of Canadian exports, and which have risen less quickly than international manufacturing prices. One of the most marked developments in 1975 was that of the trade balance of crude oil, which went from a surplus position to a deficit of 0.3 billion, probably destined to grow in 1976, due to the 27% reduction in the crude oil quota. for exports.
Towards the end of 1974, when it became clear that the economy was going through a recession, the Canadian government approved a series of measures to contain inflation and stimulate economic activity; a budget was presented for the 1975-76 fiscal year which foresees a deficit of one million Canadian dollars. This result should derive from a percentage increase in expenditure (15%) higher than that in revenue (10%). The budget also provides for tax concessions aimed at increasing the demand of private consumers. Alongside these fiscal measures, monetary measures were introduced to reduce interest rates, which had reached very high levels.
Commercial exchange with Italy had a positive evolution in 1975; the data in fact indicate a slight decrease in our imports from Canada, which went from 383.142 million lire in 1974 to 363.945 in 1975, and an increase in our exports, which went from 205.699 million lire in 1974 to 228.691 in 1975.