Part of a country’s economic strength is in its foreign reserves. It was with great surprise to find out where Canada ranks in terms of 171 countries. Care to guess? According to Global Finance and using IMF data, Canada ranks 30th behind Thailand (16), Algeria (17), Mexico (18), Libya (the country we just tried to bomb into the stone age) (24), and Turkey (26) among others. In US dollar terms, Canada has $69.8 billion in reserves. For comparison, the Philippines (28) have $78.1 billion. China, ranked number 1, has $2.5 trillion.
As the article notes:
Ample IRs allow a government to manipulate exchange rates—usually to stabilize rates to provide a more favorable economic environment or to purchase its domestic currency to protect the country from a capital crisis provoked by an attack on its currency by speculators.
During economically challenging times, countries whose private capital inflows do not cover their financing needs will often bridge the gap by drastically reducing their trade deficits (through reducing imports [austerity]) or by drawing down IRs. However, other government liquid assets can be applied to liabilities in times of crisis, including sovereign wealth funds (SWFs). If SWFs were included, Norway and the Gulf States would rank higher on the list (the UAE would be second after China) [SWFs are funded primarily by income from oil exports. Canadians on the other hand, spend their wealth even before they make it and have no SWF.]
At some point, the sharks in the global financial markets may see a point when Canada is vulnerable, particularly with insufficient foreign reserves to mount a good defense of its currency. If such a time arrives, expect no mercy – just pain for the folly of spending everything today and saving no reserve for tomorrow.
Data on Canada’s foreign reserves can be found at The Bank of Canada website and the Department of Finance’s website. It is interesting to note in footnote 1 of the Finance site that the gold portion of Canada’s reserves is assigned to the Royal Canadian Mint at 107,700 oz. or 3.35 tonnes. As Wikipedia notes, Canada ranked 81 in 2010 among the countries holding reserve gold.