Short-term Capital Movements and the Flexible Canadian Exchange Rate, 1953–1961

Abstract

The external value of the Canadian dollar was remarkably stable during most of the recently ended regime of the flexible exchange rate. Short-term capital movements which tended to offset net shortages or surpluses of foreign currency arising from other transactions made an important contribution to this stability. This paper is an investigation of the causes of those generally stabilizing short-term capital movements.Each of seven categories of short-term capital movements is considered, some categories being components of others. The seven categories, taken from the international accounts published by the Dominion Bureau of Statistics, are as follows. An arbitrary short name for each is given in brackets.1. (Total private). The sum of the three following items, consisting of capital movements of a short-term nature not carried out by the Canadian government or central bank.2. (Bonds). Net trade between Canada and other countries in outstanding Canadian bonds and debentures.3. (Canadian dollars). The change in foreigners' holdings of Canadian dollars.4. (Other). Other capital movements, adjusted. This is the balancing item D17 in the official Canadian international accounts, adjusted to remove a variety of irrelevant transactions.5. (US dollars). The change in Canadian holdings of bank balances and other short-term funds abroad, excluding the official reserves. It consists largely of US dollar assets. It is one component of “Other” above.6. (Commercial credits). This is the remainder of “Other” above, and consists of all other non-government transactions including changes in loans and accounts receivable and payable.7. (Official). The change in the official reserves of gold and foreign exchange.