Devaluing the Dollar

The slow-starting campaign toward Canada's national election on June 18 seemed an election in search of an issue--an easy-to-grasp, dollars-and-cents sort of issue. Last week Prime Minister John Diefenbaker's Tory government suddenly --and perhaps unwillingly--provided one.

After vainly trying to stem a run on the sagging Canadian dollar, the government decided to peg the Canadian dollar's exchange rate at a low 92 1/2-c- to the U.S. dollar. (In Canada, the U.S. dollar will be worth $1.08.)

Alone among the 75 members of the International Monetary Fund. Canada had let its exchange rate bob free ever since 1950. But the IMF, and its able Swedish director, Per Jacobsson, have been increasingly irritated at the way Canada has been manipulating its dollar to try to jog the slumping Canadian economy. The IMF turned up the heat on Ottawa to peg its dollar at a fixed rate.

As it turned out, the Tory government got more devaluation than it bargained for. Since last October, the foreign exchange fund has been forced to spend $516 million of its U.S. reserves not to press the dollar down farther, but to prop it up at 95-c- U.S. Last month the drain on its reserves was $115 million. Last fortnight heavy selling by foreign exchange speculators betting that the Canadian dollar would slump still lower suddenly raised serious doubt that the government could hold the line without exhausting the exchange fund altogether--and confronted it with a tricky political choice. Rather than let the challenging Liberals moan about the run on the dollar, the Tory government boldly decided to flee to the pegged rate (backed if necessary by the resources of the IMF).

"This means," thundered Prime Minister John Diefenbaker. trying to make the best of it. "increased exports, increased jobs and more prosperity for all Canada." Liberal Leader Lester Pearson, trying to make the worst of it. labeled it "a confession of the complete failure of the government's economic policy.'' Certainly the devaluation seemed to strike at Canadians' instinctive pride in their dollar, arming Pearson in his campaign charge that Canada's international prestige has declined under five years of Tory management.

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