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During the 1940s, there was an active debate over whether the unofficial rate was the "true” value of the Canadian dollar. The Bank of Canada maintained that, given the "limited use” of inconvertible Canadian dollars and the small size of the market, prices were not necessarily an accurate reflection of sentiment towards the Canadian dollar (FECB 1947, 5).
1939-50 | Views: 509 | Added by: gogoshvab | Date: 2010-02-19


 
Shortly after the imposition of exchange controls in 1939 and the official fixing of the Canadian dollar’s value in terms of the U.S. dollar by the FECB, an unofficial market for Canadian dollars developed in New York that persisted until the Canadian dollar was floated at the end of September 1950. This was a legal market involving transactions in Canadian dollars between nonresidents of Canada. Residents of Canada were prohibited from acquiring foreign exchange through the unofficial market. Similarly, no resident of Canada was ever authorized to convert foreign exchange into Canadian dollars through the unofficial market.
1939-50 | Views: 474 | Added by: gogoshvab | Date: 2010-02-19

The new exchange rate did not hold for long. Imports from the United States rose sharply, leading to a marked decline in Canada’s holdings of gold and U.S. dollars in the second half of 1946 and through 1947. While Canadian exports to the United Kingdom and other countries remained robust, they were financed largely by Canadian loans. Hence, they did not boost usable reserves.
1939-50 | Views: 668 | Added by: gogoshvab | Date: 2010-02-19

By late 1944, pressure on Canada’s foreign exchange reserves had eased dramatically. The Hyde Park Agreement of April 1941, the entry of the United States into the war in December 1941, as well as major U.S. infrastructure projects on Canadian soil (such as the construction of the Alaska Highway) contributed to a rebuilding of Canada’s foreign exchange reserves. There were also significant capital inflows into Canada, partly from Canadian residents repatriating funds invested in U.S. securities, but also from U.S. residents buying Canadian Victory Bonds. U.S. direct investment in Canada also increased.
1939-50 | Views: 471 | Added by: gogoshvab | Date: 2010-02-19



Exchange controls were introduced in Canada through an Order-in-Council passed on 15 September 1939 and took effect the following day, under the authority of the War Measures Act. The Foreign Exchange Control Order established a legal framework for the control of foreign exchange transactions, and the Foreign Exchange Control Board (FECB) began operations on 16 September. The Exchange Fund Account was activated at the same time to hold Canada’s gold and foreign exchange reserves. The Board was responsible to the minister of finance, and its chairman was the Governor of the Bank of Canada. Day-to-day operations of the FECB were carried out mainly by Bank of Canada staff.
1939-50 | Views: 574 | Added by: gogoshvab | Date: 2010-02-19