Dollar Higher
Wednesday, September 7th, 2011 |
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Why does a higher valued Canadian dollar slow economic growth?
This may seem naive, but I know very little about economics. I've tried to search for this and can't really find anything. Can anyone point me to a source that explains why the rise in the value of the Canadian dollar slows economic growth? I always thought that a higher dollar was a good thing.
Fewer foreign people can afford to purchase Canadian goods when the value is higher (it means their currency is weaker against the Canadian dollar). The upside is that Canadians can afford more foreign goods. This also impacts economic growth though because the stronger dollar leads Canadians to prefer foreign products to domestic products.
An example a $1000 dollar product would cost 100,000 yen at a 100 yen to $1 exchange. If the dollar gets stronger, driving the exchange to 200 yen, then it would cost 200,000 yen for the same product. Since the price of the product has in this example effectively doubled for the Japanese buyer, they would be less likely to purchase it. The flip side is that your $1000 will purchase 200,000 yen worth of products from Japan instead of the 100,000 yen worth that you were previously limited to. So Canadians will tend to buy more foreign products. Hope it clears the issue up for you.
Cheers!
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