IMF Considering Including Canadian Dollar in its Official Currency Reserves

#Money

Thu, Nov 22nd, 2012 11:00 by capnasty NEWS

Thanks to the stability of the Canadian economy, causing foreign countries to stock up on the loonie -- what Canadians call their dollar -- the International Monetary Fund (IMF) is considering placing it as part of the Official Currency Reserves. What this means is that the Canadian dollar is becoming "a convertible currency that is freely usable for settlements of international transactions" and that it is "growing in importance as foreign exchange reserves climb."

Russia has started buying loonies, for example, while the Swiss National Bank says the Canadian currency now accounts for 4 per cent of its foreign exchange reserves.

?I think it just highlights how important Aussie and CAD have become,? said senior currency strategist Camilla Sutton of Bank of Nova Scotia, referring to the Canadian currency by its symbol.

?We?ve seen this for a couple of years now.?

Reserve managers, noted Ms. Sutton, are increasingly looking to diversify their holdings as their reserves swell, and ?diversification is hard to find.?

Both Canada and Australia are advanced economies, fuelled by commodities, both are rated triple-A, and both have developed bond markets, she added.

The move by the IMF will do nothing to affect the value of the already strong loonie, but it does suggest that the inflow of foreign money into Canada will continue, thus supporting the currency, she said.

And while the stronger loonie suggests Canadian tourists will have more buying power should they be travelling outside the country, it also spells more trouble for the nation's exporters.

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