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Essay / Canada Fixed Exchange Rate Essay - 1039
In 2015, Canada is the eleventh largest economy in the world with a normal GDP close to 1.79 trillion US dollars. The Canadian economy depends primarily on its resources and trade. Canada has had good results in stabilizing economic growth. Canada has had a floating exchange rate for 42 of the last 50 years. (6) In recent years, the Canadian government's question has been whether it should maintain a floating exchange rate or return to a fixed exchange rate. The exchange rate presents a rate at which one currency can be exchanged for another, and it can be divided into fixed exchange rate and floating exchange rate. The fixed exchange rate is set by the central bank and maintained as the official exchange rate. It can only be moved within a very small range. The floating exchange rate is determined by demand and supply in the private market and can also fluctuate depending on the value of the currency. Many countries have used a fixed exchange rate under the Bretton Woods system to maintain a stable exchange rate with the United States. represents 75 percent of Canada's total exports, and overall exports represent 40 percent of Canada's GDP. Analyzing Bank of Canada data, the average exchange rate (CAD/USD) is 0.7648 in October 2015, and the October figure is higher than the previous two months, which are 0.7595 and 0.7538 (according to “Trading Economics”). , Canada's trade gap widened from 2.32 billion to 2.76 billion between the previous two months and October 2015. Total exports fell by 1.8% and the main reason was the loss of 2.8% of trade sales with the United States. As of 2013, Canada's exchange rate (CAD/USD) was 0.9977. We assume that if Canada assumed a fixed exchange rate at 0.9977 and applied this rate during the depression, the deficit situation would be even worse. Thus, floating exchange rate helps the economy to correct the balance of payments imbalance when the world market enters into a difficult situation.