Bank of Canada worried by US current account gap, risks to US dollar

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Bank of Canada worried by US c/a gap, risks to US dlr

3/28/2001 6:05:00 PM OTTAWA, March 28 (Reuters) - Bank of Canada Governor David Dodge voiced concern on Wednesday that the United States was running so high a current account deficit that the U.S. dollar could end up with a destabilizingly sharp correction.

He pointed to a U.S. current account gap equal to about 4 percent of gross domestic product and net international indebtedness of 13.7 percent.

"If they continue to run at this rate, very quickly they're going to be up at levels where we and a number of countries have found themselves in great difficulty," Dodge told the federal Senate Banking Committee.

"Without some adjustment on the front, I think we all begin to worry that down the line, maybe not too many years down the line, we're going to have an adjustment of an extraordinarily sharp magnitude of the U.S. dollar that's going to be very hard for all of us to cope with."

He was responding to a question about whether the central bank worried about the Canadian dollar falling, perhaps to 60 U.S. cents (C$1.67 per U.S. dollar) or 59 cents from the current 63.9 U.S. cents (C$1) -- and pointed to worries instead about the U.S. deficit.

Dodge said no policy maker was "very unhappy" with the Canadian at 73 or 74 U.S. cents (C$1) , levels seen before thee the Mexico peso crisis in the mid-1990s knocked it down and the subsequent Asian crisis hurt it further.

"We certainly don't take any comfort at all that over this period of crises that we seem to get knocked down a peg and then not recover from that," he said.

"The assertion that is sometimes made, that we are really happy to have seen this happen, is absolutely not true." http://www.prudentbear.com/boards/user/non-frames/message.asp?forumid=4&messageid=36149&threadid=36149

-- Carl Jenkins (somewherepress@aol.com), March 28, 2001


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