While we’re not going to alter the flexible exchange rate component of our monetary policy framework, it is incumbent on policy-makers to review even successful regimes regularly to ensure that they are serving the best interests of Canadians. To this end, it’s worthwhile to explore the four main benefits of our floating dollar: It allows monetary policy independence to achieve domestic price stability.
It facilitates adjustment to external shocks, thereby buffering their impact on economic activity. It contributes to policy clarity and effectiveness. It promotes financial sector development. We also examine recent criticisms of flexible exchange rates. Because exchange rates are market prices that trade daily, they are intrinsically volatile.