In a remark over the weekend, David Dodge, Governor of the Bank of Canada, told the Chambre du Commerce du Québec that Canada should keep its own currency, an matter Dodge had previously raised questions over.

Speaking in Sherbrooke on October 5, Dodge wondered whether Canada might be better off giving up the Canadian dollar, either through dollarization, a process by which foreign money replace domestic money in any of its functions, or by entering into a monetary union with the United States. He said that recent research conducted at the Bank shows that, if anything, Canada is now less reliant on the U.S. dollar than it was two decades ago. “We are not drifting towards dollarization. If we go down that road, it will be a deliberate choice.”

Dodge reiterated the familiar argument that a floating currency acts as a mechanism that allows the Canadian economy to adjust to important economic changes, or “shocks” as economists say. These can include movements in relative world prices, changes in capital flows or divergent economic conditions across countries.

“Without a floating currency,” he said, “the Canadian economy would still need to absorb the effect of changes in relative prices. But the burden would fall initially on output and employment and, eventually, on all wages and prices. This would be a far more difficult and costly process for many.”

“Right now, our analysis tells us that Canada derives a significant benefit from having a floating currency – a benefit that far outweighs the costs. This system helps the economy to adjust to economic shocks, and allows us to have a monetary policy accountable to all Canadians. The floating exchange rate system serves the interests of all Canadians very well,” Dodge concluded.