Monetary Policy

Canada has benefited immensely from low, stable rates of inflation and a floating exchange rate. Our monetary policy has provided a solid foundation for medium- to long-term economic growth and greater prosperity for Canadians.

• A floating currency helps the Canadian economy make adjustments in a volatile global economy. Without a floating currency, Canadians would have to deal with external shocks through other, harsher mechanisms such as labour force reductions or wage and price adjustments.
• The steady decline of the Canadian dollar during the 1990s provided temporary competitive advantages to Canadian exporters, but also reduced Canadian incomes in global terms, left Canadian companies vulnerable to takeovers at bargain prices and undermined their ability to expand globally. More recently, international recognition of Canada’s economic success has fueled a sharp rise in the value of the dollar. Manufacturers have been investing aggressively in new technologies in order to cope with the combined impact of a higher dollar, rising energy prices and intense competition from Asia, particularly China and India. The stronger dollar puts more pressure on Canada to ensure that its business environment supports the continued growth of global enterprises from a Canadian base.
• Given Canada's small size relative to the United States, outright adoption of the United States dollar is the only practical alternative to a floating Canadian dollar. Because Canada's economy is still structurally distinct from that of the United States (for example, Canada gains from rising commodity prices while the United States is a net loser), an independent currency remains the preferred option.
• The inflation target set by the Bank of Canada in agreement with the Government of Canada (with two percent as the mid-point of a one percent to three percent target range over the medium term) continues to be the best way to maintain low interest rates.