Surging loonie has some benefits, Flaherty says

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A Canadian dollar trading above par with the United States isn't all bad, says Jim Flaherty, noting that businesses are using their stronger purchasing power to boost productivity through new investments.

The finance minister usually declines to answer questions about monetary policy – deferring to the Bank of Canada – but did weigh in on the topic Wednesday in Ottawa before a retreat with business leaders and policy experts.

"Canada's economic and fiscal fundamentals are strong and to some extent that's reflected in our currency," he said. "There are two sides of that coin. It does have some effect on exports but I've found in my discussions with Canadian business leaders that they adapt."

The minister said the potential concern he hears from business leaders is if there are rapid fluctuations in the value of the loonie, which creates uncertainly.

"We haven't seen that," said Mr. Flaherty. "The positive side of the coin is the purchase of machinery and equipment by Canadian businesses which has gone up and that's very important in terms of increasing Canadian productivity and growing our economy."

The minister is heading in to the sixth annual summer policy retreat as the government prepares its fall agenda. Mr. Flaherty said the federal government is on track to erase the deficit within two years, but described the state of the global economy as "stubbornly fragile."

He said Europe still needs to do more in terms of stabilizing its economy. He declined to answer repeated questions about the economic proposals surfacing during the Quebec provincial election.

Though the United States is also in the midst of an election campaign, the minister did urge Canada's neighbour to produce a clear plan for tackling its deficit.

"I'm not going to get involved in election campaigns, but I think it's quite clear – and I've met with U.S. Congressional leaders, I meet with them fairly often over the years, including some who are quite active right now – there needs to be a plan, first of all, to avoid financial crisis at the end of this year in the United States. And secondly, a plan to get back to balanced budgets over the medium term," he said. "It's a daunting challenge but it's very important, not only for the United States, but for us and the rest of the world."