Volatility in the Canadian dollar is a price worth paying to have a floating currency and monetary policies that suit the Canadian economy, says David Dodge, governor of the Bank of Canada.

Speaking to the Brazil-Canada Chamber of Commerce in São Paulo today, Dodge said Canada will continue to have flexible exchange rates. “We recognize that a floating currency implies some volatility. But I can tell you that Canada derives enormous benefits from having a floating currency working in conjunction with a solid monetary policy anchor,” Dodge said.

In his speech, Dodge steered clear of current monetary policy talk. However, he did stray into other policy recommendations. Dodge noted that “maintaining fiscal balance must remain a priority for Canada in the years ahead. Our federal and provincial governments have made great progress on this front, but we in Canada cannot afford to give back these hard-won gains.”

“This priority is heightened in Canada by our longer-term demographic challenges. Our ratio of public debt to GDP will need to decline further to give us the flexibility to meet the demands of our aging population,” Dodge stressed.

He also indicated the importance of “the appropriate microeconomic policies in areas such as labour markets, intellectual property law, the environment, and foreign investment. The right microeconomic policies are essential in order to increase productivity and raise living standards in the future.”

He said that these policies can create unequal adjustment burdens, but that this is no reason to avoid ideal policies.

Dodge said that government should promote an efficient and robust financial system, including a strong banking sector. “This is particularly true in countries such as Canada, where small and medium-sized businesses create the majority of jobs. Growing firms must have access to credit within a well-functioning financial system. Further, people need to have confidence in the banking sector, so that savings can be efficiently recycled to help businesses expand,” he said. “

“Beyond the banking sector, countries should also work to develop healthy and efficient financial markets,” he noted. “Now, and in the future, we will need to remain focused on promoting healthy and efficient markets. This topic is an ongoing priority for research at the Bank of Canada.”

He also said that the Bank is committed to trying to extend the benefits of free trade to the whole of the Americas through the Free Trade Area of the Americas; and, that it is committed to lowering trade barriers at the Doha round of multilateral negotiations.

“So those are the five areas that should be priorities for Canada in the years ahead: fiscal prudence, the right microeconomic policies, appropriate social policies, a strong and stable financial system, and more open trade. Monetary policy, for its part, will continue to be focused on keeping inflation low, stable, and predictable, thus giving citizens, businesses, and investors confidence in the future value of their money. To achieve this, we will try to keep supply and demand in balance,” he said.