What the BoC has done to the Canadian dollar

Reading the Austrian literature, one often comes across the claim that the US dollar has lost 95% of its value since the Fed’s inception in 1913. A Canadian reading that might well ask how much our dollar has been cheapened since the Bank of Canada (BoC) was founded in 1935.

A good question indeed. To answer it, let’s compare the Canadian dollar to gold. In 1935, an ounce of gold was US$34.34. Since the Canadian dollar was trading roughly at par with the US currency at the time, an ounce of gold also went for CA$34.34 in 1935. As I write this, gold is trading at CA $1350.

We can best determine the percentage loss this represents by considering the reciprocals of the gold prices listed above. This will tell us how much gold one could obtain for a dollar then and now. Thus, in 1935, a dollar got you 0.029121 ounces of gold. Currently, the same dollar will get you 0.000741 ounces. This works out to a 97.5% loss in the value of the Canadian dollar. That’s not a misprint! Yes, our loonie has been cheapened by 97.5% since the Bank of Canada was originally established.

Looking more closely at how gold prices moved over time, it’s clear that the bulk of the devaluation took place from 1971 forward. That was the year, of course, that President Richard Nixon broke the US dollar link to gold, which marked the beginning of the end of the Bretton Woods international monetary system. This had been in operation since 1945.

In August 1971, when the so-called Nixon shock occurred, gold was trading at CA$43.32 per ounce. This is equivalent to 0.023084 ounces per Canadian dollar. Comparing that to today’s rate, we find that the Canadian dollar has suffered a devaluation of 96.8% since 1971.

All this serves to underline that the breakdown of Bretton Woods is the seminal monetary event of our time.

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