Depreciation of the Candaian Dollar :: essays papers

Depreciation of the Candaian Dollar Canada has been increasing its prestige as a high-tech, industrial, society since the end of World War II. In many ways it resembles very closely its southern North American cousin, the United States. Some of those similarities are residing in its market-orientated system, pattern of production, and its high standard of living. Most years following the war up to the present, Canada has experienced some kind of continued growth as a prosperous and developed country. However, during the year of 1998, Canada experienced an unexpected large depreciation in their dollar relative to the United States. Late in August of that year, in fact, the value reached an all-time low. During this paper, I will try to present some of the possible economic factors that may or may not have led to this change in Canada’s exchange rate. I will also examine some additional analysis and theories as to why the trend possibly occurred. Exchange Rate As the year 1998 approached, the trend for the Canadian dollar was on a steady decrease in value in relation to the U.S. dollar. With each passing year the dollar lost some value as the table below demonstrates. Year 1990 1995 1996 1997 1998 Exchange Rate 1.16 1.38 1.36 1.38 1.48 All data tables extrapolated from the Cambridge Forecasts Country Report, unless otherwise noted. It took an exceptional hit during the year, moving the rate from 1.38 U.S. dollars to 1.48 in U.S. dollars. The plunge is better exhibited in Appendix 1, with the sharp decrease of the dollar illustrated graphically and more specifically, with Appendix 2 showing the drop throughout the year of 1998 alone. Growth Rate In terms of growth rate, the years leading up to the exchange rate drop in 1998 showed very typical numbers. There was nothing out of the ordinary, or anything to hint at a sharp decrease in the value of the Canadian dollar. As highlighted below, up to 1998, the economy was growing at a slow but steady rate each year. Both the Total Gross Domestic Product and percentage of GDP real growth were increasing overall. Year 1990 1995 1996 1997 1998 GDP (bill. of U.S. $) 573966 584044 611602 631193 603978 Year 1990 1995 1996 1997 1998 GDP Real Growth (%) N/A 2.3 1.6 3.7 3.1 However as the numbers for 1998 indicate, the depreciation of the dollar definitely took a significant chunk out of the Total Gross Domestic Product, dropping it below 1996’s levels.