A U.S. dollar coin and a Canadian loonie. The Canadian dollar hit par with the U.S. dollar on Sept. 20, 2007, for the first time in almost 31 years. (Doug Ives/Canadian Press)
Loonie versus greenback: Parity, shmarity
Last Updated October 1, 2007
So after more than three decades of mostly downs and some ups, the Canadian dollar has touched parity with the American dollar. It's a good economic news story we're told — unless you earn your living as a manufacturer of products destined for the American market.
It isn't necessarily so, according to John Floyd, a University of Toronto economics professor.
"It's just a point on a scale," Floyd told CBC News. "One to one just happens because the U.S. and Canadian dollars are both called dollars, so there is a tendency to think a dollar is a dollar. But it's not really."
While the Canadian dollar has surged in relation to the American dollar, it hasn't appreciated nearly as much against other world currencies.
The Canadian buck hit par with the U.S. dollar on Sept. 20, 2007. On Sept. 20, 2006, the Canadian dollar was worth 88.71 cents US — up about 12 per cent over the year. However, compared to the euro, the dollar had risen by about two per cent.
In reality, the effect of parity may be more psychological than anything else.
"My friend in the UK always says the proud pound," said Stephen Butler, a currency trader with Scotia Capital. "For now we can say the proud Canadian dollar, and I think it is something — a strong economy, a strong currency — it is something that is a good thing for Canadians."
Consumers warned of price gouging
It certainly makes one thing easier to figure out. When a Canadian dollar and an American dollar are worth the same amount, it's pretty easy to figure out what something will cost you when you buy it south of the border.
"A buck for a buck is a very good thing if for no other reason than there wouldn't be so much volatility in the tourism industry," said Sherry Cooper, chief economist for BMO Capital Markets. "You could go to New York City, buy something on your credit card and when you come home, the bill doesn't blow you away. It also means that all those transaction costs associated with different currencies would be eliminated."
And you might also notice that while there's parity, price discrepancies still remain.
At a Chapters store in Vancouver, Bill Clinton's latest book is discounted to $20.96. In Bellingham, Wash., it's available for $14.97. A bottle of Fetzer Valley Oaks California Chardonnay is $13 at a B.C. liquor store but only $9 across the border. The discrepancy in shoes can be even greater. At a Nine West store in Vancouver, a pair of Chardin women's dress shoes are $150 but just $99 in the U.S.
The president of the Consumers Association of Canada said there is no justification for the price differences.
"Somebody is making windfall profits — lots of people — and they can't be weaned from this," Bruce Cran said. "We are recommending that people be aware, be informed of what the prices are in the two countries, and if they are satisfied that they are going to get a better deal across the line, that's where they should go."
A Bank of Montreal report found a 24 per cent discrepancy between the price of a basket of goods in the U.S. compared to what the same products sell for in Canada. Doug Porter, the bank's deputy chief economist and author of the report, said it may take a year or two for price savings to trickle across the border.
"One of the reasons why the adjustment has been so slow is retailers have a lot of costs that are fixed, and those costs are in Canadian dollars and they haven't come down just because the Canadian dollar has gone up."
Discounting, bordering shopping predicted
But Porter warned that the pressure on retailers will build enormously now that the dollar has hit parity.
"I think if there's any hint of a cooling off in consumer spending especially heading into the crucial Christmas season, somebody could break this logjam and we could see massive discounting."
Porter suggested that if prices don't come down, cross-border shopping may become a factor again. However, he pointed out that conditions today are far different than they were in the late 1980s and early 1990s when Canadians flocked across the border to buy goods with a strengthening dollar.
"Cross-border shopping isn't nearly as hassle free as it used to be — and of course, back then we didn't have the kind of U.S. retailers that we now have here. For instance Wal-Mart and Home Depot weren't in Canada back in the late '80s. The average consumer has to decide whether the price difference is worth the trip to the U.S."
The United States has tightened the rules for people crossing into the United States, and that's led to some lengthy delays at border crossings since the terrorist attacks of Sept. 11, 2001. Statistics Canada has also reported that same-day car trips to the United States have fallen by about 50 per cent in the past 15 years.
On the other hand, the federal government has relaxed the rules on how much you can bring back from the United States before you have to pay duty — from $200 per person per 48-hour visit to $400. That's if you decide to declare your purchases.
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