Letter: Bank of Canada made a mistake

By Letter to the Editor on May 5, 2022.

Dear editor,

Make no mistake I am a rigorous defender of our National Bank but at times I believe they make mistakes which I simply do not understand.

The most recent one ( in my opinion ) occurred on April 19 when the federal government announced its intent to issue a U.S.-dollar-denominated global bond the next day on April 20, subject to market conditions.

What this means essentially is that we are relinquishing a small amount of our sovereignty. How we are doing that is by issuing a debt instrument that is not denominated in Canadian currency and as such is subject to the rises and falls of a currency that we do not control.

Having debts denominated in foreign currencies is not new in the financial world – it has and is happening in Venezuela, it also happened in the Wiemar Republic and in other countries and states as well.

Please don’t get me wrong, I am not comparing us to them as there are far more differences than similarities but the point remains it is debt that is out of our control.

Canada does, as it should, hold Foreign Currencies in the Exchange Fund Account, of which approximately $54 million is U.S. dollars. The account also holds the EURO, the Pound Sterling and the Yen and perhaps very small amounts in other currencies. But, those are foreign denominated currencies and not debts denominated in their currencies.

There are risks involved in doing these types of transactions, and although the risk level is very small it is an unnecessary risk and should, in my opinion, never be undertaken. If countries and other entities want to buy U.S. denominated paper, let them buy it from them. The only reason to buy it from us would be for a greater return then they could receive by buying it directly from the U.S.

In closing, the reward to be reaped is far lower than the risk being taken.

Like so many things, once this road starts to be travelled, it gets easier and easier with virtually no upside and considerable downside.

David W. Railton

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