Two Sides to Canada’s Falling Currency
Evidence of how Asia’s sickly yen, won and other currencies have infected Canada abounds in this postcard-perfect setting in the northern Rockies.
The tour buses that once delivered visitors by the hundreds from Tokyo and Seoul, fueling a boom that transformed this village into a resort with visions of rivaling Aspen, are fewer and fewer.
In their place are American tourists lured by Canada’s own sickly dollar, the “loonie,” whose value has been depressed by the Asia financial crisis, creating bargains for Yankees.
Upscale boutiques along Banff Avenue have added the Stars and Stripes to their regular Asian-language window displays and signs. At the venerable Banff Springs Hotel, blocks of rooms once booked for the summer by Far East tour groups are now earmarked for Americans.
But the Asia crisis is affecting more than Canadian tourism, and is, in fact, rippling deep into the economy of America’s largest trading partner. The Canadian dollar, nicknamed for the engraved loon on the back of the $1 coin, has been crashing to new lows nearly daily against its American counterpart.
Indeed, some here are calling it the “northern peso.” In July, it lost more ground against the U.S. dollar than any major currency except Japan’s. Its value has been eroded by decreased Asian demand for Canadian exports and the flight of investors to the U.S. dollar.
The decline has begun to rattle Canadian consumers and investors, sparked fierce debate among economists and even prompted suggestions that Canada abandon its own money and adopt the U.S. greenback.
For Americans spending their dollars here, it’s an unprecedented bargain. As of Wednesday, they could trade their U.S. dollar for $1.51 in Canadian currency, compared with $1.38 just a year ago.
As in the United States and elsewhere, the Asia crisis has created a complicated mix of opportunities and upsides as well as problems. The weak loonie has robbed Canadians of purchasing power even as it has revitalized Canadian exports to the United States, tourism from the U.S., local film production and a handful of other Canadian industries.
Leonard Lang, a former member of the Canadian national ski team, is among those benefiting. In 1997, Lang opened a cigar store in Banff that deals exclusively in Cuban cigars. Business is up 80% over last summer, due almost entirely to American shoppers--even though it is illegal to bring Cuban cigars into the United States.
Like other shop owners in town, Lang has begun displaying two prices on his merchandise--one in Canadian dollars and the equivalent in U.S. dollars--to alert American customers to the bargain.
The loonie is falling so fast, merchants can’t always keep up with it. As recently as June, the Banff Springs Hotel was promoting its “Canadian Rockies Experience” vacation package as “$619, Canadian, or approximately $458, U.S.” per day. Today, the U.S. cost is closer to $410.
In Toronto, William James, president of Inmet Mining Co., blesses the weakening Canadian dollar every day as he contemplates the Asia-inspired decline in world prices of gold, copper and zinc. Because world gold prices are fixed in U.S. dollars but most of Inmet’s costs are paid in Canadian currency, the decline has helped the firm.
“The [Canadian] dollar hasn’t fallen as much as the prices have, but it’s a good thing for all of the mines in Canada that the dollar has fallen,” said James, whose company operates two mines in Canada and others around the world.
Other miners, wood products companies and the oil industry have benefited from a similar cushioning effect despite the reduced demand from Asia. The national unemployment rate has remained at 8.4% for four months, high compared with the U.S., but down from 8.9% at the beginning of the year.
Largely because the Canadian economy is so dependent on the United States--the destination of 83% of Canada’s exports and the source of 77% of its imports--the relative strengths of the two dollars draw far more attention here than in America.
In recent weeks, the dollar’s descent matched the gyrations of the stock markets as the top domestic news story here. The Bank of Canada intervened earlier this week by using its U.S. dollar reserves to buy Canadian dollars and pushed the value up again slightly. But the central bank so far has resisted raising interest rates for fear it would throw an already slowing economy into reverse.
Even with reduced projections, the gross domestic product here is expected to grow 3.1% this year and 2.7% in 1999, the Conference Board of Canada reported last week. That compares with 3.7% growth last year. Inflation remains virtually nonexistent.
Nonetheless, the same report showed an erosion in consumer confidence, which echoed a July poll reporting a 17 percentage point drop in the number of Canadians expecting an improved economy.
The effect could widen this fall with consumer price increases on more goods imported from the U.S., said Bob Armstrong, president of the Canadian Importers Assn.
The adverse impact has been greatest on Canada’s West Coast, which has the strongest economic ties to Asia and is the region most dependent on resource industries such as forestry and mining. While the rest of Canada looks toward reduced economic growth, the province of British Columbia is tipping into recession.
According to John de Wolf, president of CCG Consulting Group in Vancouver, in the early 1990s boom, 35% to 40% of the region’s exports went to Asia--a much higher percentage than in the rest of Canada.
Now, de Wolf said, that figure has dropped to 22%, and the weakened economy is more dependent on its emerging high-tech industry, tourism, some specialty manufacturing and motion picture production.
The weakness of the loonie versus the greenback is a major draw for filmmakers shooting on location in Canada. Peter Mitchell, director of the British Columbia Film Commission, acknowledged that it is “the No. 1 factor driving the TV and film industry” in the province, which hosted more than 160 productions last year.
In Alberta, used primarily in the past for filming Westerns, the government this year converted part of an abandoned army base in Calgary into sound stages that are now being used by U.S. producers of three television movies and a cable television series.
Both sides of the Asia crisis are on display in Banff--Canada’s oldest national park and the destination of more than 5 million visitors a year.
Greg McKnight, executive director of the Banff-Lake Louise Tourism Bureau, said that before the crash, Japan was the region’s biggest overseas market and South Korea was the fastest-growing one. Now visits from both countries have tumbled.
“The Japanese were the largest per diem spenders by far in Canada,” he said. “If there’s one sector that has really been hurt by the Asian crisis, it’s the high-end retailers, the furriers, jewelry stores, leather goods.”
But the limp loonie has been a boon for the Canadian tourism industry. Travel to Canada has become such a bargain for non-Asians, that non-Asians have more than made up for the falloff in Asian visitors. The Canadian Tourism Commission reports that through May, overall visitation increased 4.9% from a similar period in 1997.
That’s not to say Banff marketers have given up on Asia, according to McKnight. “We’re assuming it’s going to be down for three to five years,” he said. “But we still have to be there, because when it does turn around, we want to be at the top of the mind.”
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Andrew Van Velzen in The Times’ Toronto Bureau contributed to this report.
* YEN REBOUNDS: Japan’s currency recovered from an eight-year low. D4
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Fall of the Loon
The Canadian dollar lost more ground to the U.S. dollar in July than any currency except the Japanese yen.
How many Canadian dollars it takes to buy a U.S. dollar (scale is inverted to show negative trend):
Wednesday: $1.52 Canadian dollars per U.S. dollar.
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Source: Bloomberg News
