Canada has been increasing its prestige as a high-tech, industrial, society since the end of World War II. In many ways it resembles very closely its southern North American cousin, the United States. Some of those similarities are residing in its market-orientated system, pattern of production, and its high standard of living. Most years following the war up to the present, Canada has experienced some kind of continued growth as a prosperous and developed country. However, during the year of 1998, Canada experienced an unexpected large depreciation in their dollar relative to the United States. Late in August of that year, in fact, the value reached an all-time low. During this paper, I will try to present some of the possible economic factors that may or may not have led to this change in Canada's exchange rate. I will also examine some additional analysis and theories as to why the trend possibly occurred.

As the year 1998 approached, the trend for the Canadian dollar was on a steady decrease in value in relation to the U.S. dollar. With each passing year the dollar lost some value as the

But as Appendix 1 indicates, 1997 was the beginning of the gradual decent of the Canadian dollar, until it reached it's low in August of 1998. This translates to the relatively more expensive foreign products (imports), as Canada's ability to purchase and make good on its domestic products (exports) being sold overseas decreases. In other words, the cost to buy foreign products rose while the amount of money taken in on imports when converted to their currency fell. This is again demonstrated as you look at the amount of exports. It continues rise, but not as quickly due to the lower exchange rate. Couple that with higher prices paid for the imports equals a significant decrease in the trade balance. The balance in 1998, in fact, was lower than the balance in 1994.

Dollar Reserves (mil of U.S. $) 392 -2710 -5498 2392 N/A

A final economic indicator that helps us to explain the reasons behind the exchange rate drop is to look at a few of the key interest rates in the economy in and around that time.

To conclude, the depreciation of the Canadian dollar had many influences hinging upon it. Some of the key economic indicators were unfazed by the devaluation, while others were heavily affected. These and the outside factors of the Canadian government's ignorance of the problem and the Asian currency crisis all added to the already confusing mix of speculations. A quote in the article by Janet Matthews ties it altogether best, "...if we have learned anything from the last 18 months, it is that only the longest of perspectives is likely to be of any use when looking a Canada's economy. This period since May 1998 has been characterized by so many ups and downs that it is easy to jump to conclusions when looking at economic performance statistics." Many economists did. They believed that this depreciation would cause a long term economic slowdown for Canada but as current facts indicate, the dollar has regained some of its strength and contrary to predictions, the economy is again growing and improving at a steady rate.

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Approximate Word count = 1557
Approximate Pages = 6 (250 words per page double spaced)