As a member of the International Monetary Fund (IMF), Canada’s decision to float the Canadian dollar was at odds with its commitment to the Fund to maintain a fixed exchange rate within the Bretton Woods system. In this regard, in 1949 the Canadian authorities had established with the IMF a "par value” of US$0.9091 with a fluctuation band of ±1 per cent. The decision was also taken over the opposition of IMF staff who recommended more vigorous foreign exchange intervention or the imposition of controls on capital inflows (IMF 1950).79 There were also concerns that Canada had "gravely compromised and embarrassed” the IMF and had set a bad example for other "less responsible members” .
At least initially, floating was viewed as a temporary measure. The minister of finance noted the government’s intention to remain in consultation with the Fund and
ultimately to conform to the provisions of the Fund’s Articles of Agreement which stipulate that member countries should not allow their exchange rates to fluctuate more than one percent on either side of the par values from time to time established with the Fund.
It would be almost 12 years before Canada reintroduced a fixed exchange rate and was again in the good graces of the IMF. Consequently, Canada came to be viewed as something of a maverick in international financial circles. The unwillingness to re-fix the exchange rate appears to have reflected concern about repeating the mistake of 1946 when the dollar was revalued upwards only to come under significant downward pressure the next year, followed by a devaluation in 1949. Subsequently, interest in re-pegging the currency waned as it seemed that Canada had the best of all worlds—a non-discriminatory trading system, an
open capital market, and a reasonably stable exchange rate. While Canada’s actions were not consistent with the IMF’s practices, the outcome was certainly in line with its goals.
Establishment of the IMF
In July 1944, representatives from 44 countries met in Bretton Woods, New Hampshire to establish the post-war international financial architecture. Agreement was reached on creating the International Monetary Fund (IMF) which, among other things, would promote monetary co-operation and discourage competitive currency devaluations. After the IMF began operations in 1946, member countries agreed to establish "par values” for their currencies in relation to the U.S. dollar and to maintain them within narrow fluctuation bands. A par value change was permitted only to correct a fundamental disequilibrium. Louis Rasminsky, who was to become the Bank of Canada’s third Governor, played a key role in the founding of the IMF, reconciling views and mediating between the British, led by John Maynard Keynes, and the Americans, led by Harry Dexter White. At Bretton Woods, Rasminsky chaired the key drafting committee. After the formation of the IMF, Rasminsky became Canada’s first Executive Director, on a part-time, unpaid basis until September 1962, while remaining a senior official of the Bank of Canada.