Boosting the Canadian Dollar as a Reserve Currency

     The status of the loonie as a reserve currency has been increasing, as noted in various reports.1

     Where to go from here? What will make the Canadian dollar even more popular?

     Let one or more banks in Canada lead the way, by offering the interbank exchange rate when selling and redeeming G.I.C.’s. Otherwise, the difference between the “buy” and “sell” rates will eliminate all the interest the investor would earn on the certificate. This spread is a prohibitive tax on investors from other countries.

     The bank would simply buy less of the other currency, or sell more of it, on the interbank market at the end of the day, to make up for these transactions.

     Start the practice of offering the interbank rate, and running press releases to announce the fact. Also train the tellers to mention to tourists, “We do offer deposit accounts to people from your country, these are insured by C.D.I.C. up to a limit, and we offer the interbank exchange rate when buying and redeeming guaranteed investment certificates.” The increase in purchases of G.I.C.’s would be gradual because these tourists exchanging money and taking cash advances on credit cards did not visit the branch for the purpose of investing. It may be necessary to invite them to produce their identification and register themselves to comply with the “Know Your Customer” requirements on the spot even if they intend to mail in a deposit months later in anticipation of their next vacation.

     The benefit to the Canadian resident is that more money is available for loans. The non-Canadian depositors may be eligible for deposit accounts and G.I.C.’s but are ineligible for most loan products. The benefit to the Government of Canada is the free money collected from the non-resident tax, which customers from some countries do not even lose because they reduce their tax in their home country by the same amount.
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It’s like a cancer.

Central banks scooping up Canadian dollars in droves
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Currency Composition of Official Foreign Exchange Reserves (COFER)

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