The Bank of Canada is expected to adjust its current monetary policy “to reflect the growing risk of a global economic slowdown” (Governor, David Dodge). Looks like we might not see an interest rate cut after all.

“It’s quite clear that global financial turbulence that we were experiencing then is now going to be more prolonged and the volatility is likely to be higher for longer than we anticipated.” –David Dodge

Mr. Dodge further added that the central bank would need to consider the growing economic risks when setting its policies (including interest rates) for the coming months.

Both Dodge and Finance Minister Jim Flaherty are urging China to increase its currency’s value, and to help expand its domestic demand and consumption. This is, by the way, supposed to help the global market in adjusting to the declining U.S. Dollar, and weaker economic growth in the U.S.A.

The current, and growing, global currency imbalances are a result of America’s huge trade deficits with its trading partners, and higher commodity prices. However, although China holds a massive trade surplus with the United States, the value of its currency (the Yuan), is set by the government; it does not change in value along with the economy’s strength. Today, the Yuan is considered to be substantially undervalued.

Exporters in several countries, including Canada, have been hurt by their appreciating currency. The Canadian government estimated that it shouldered about a third of the burden created by the depreciating U.S. dollar. According to these countries, the global currencies are not at an equilibrium where they facilitate trade.

Although I believe a revaluation of China’s currency is important to unwind global imbalances, I don’t think it is in our best interest to continue complaining about a lack of fairness or competitive disadvantage. Yes, our currency being higher than the USD does put some more pressure on us; but how we deal with this pressure is key.

The United States export sector has historically been at a huge pricing disadvantage; yet, these companies have outperformed many in the international arena. The reason being, their business operations had become more efficient and innovative - something our Canadian businesses need to focus on.

The key to economic success is not advocating for an undervalued currency; The key is to develop efficient and innovative business practices.