What is the effect of a high dollar on the Canadian economy, investors, and consumers?
It depends primarily on how the Canadian economy is designed i.e export oriented or import oriented. If you look at this, it shows more or less equal amount of exports and imports. For the specific case of Canada, the exports would become costlier, because of a costlier dollar, but at the same time imports would become cheaper. This is only a generalization, not specific goodswise, which would require a more detailed ananlysis. But investors have a different dilemma. Canadian investors would find  it cheaper to invest abroad so may channel their investments abroad because they may find it costlier to invest in Canada. While foreign investors would find it costlier to invest in Canada and may wait for later or invest somehwre else.  Then government may try to boost up investment and start lowering the interest rates, if it sees the rising dollar as detrimental for the Canadian economy and investments flowing abroad instead of Canada. But what would be the final outcome of the whole rigmarole is little difficult to predict, because something is arriving and something is departing and above all goverment is doing something or is going to do. But the basic gist is Canadian exporters will be sad and Canadian importers will be happy, but vice versa for foreign investors intending to invest in Canada.
I haven't read the terms here but the question may not have a good answer.  That won't stop me from trying.   Call the real rate (interest rate - inflation) and you'll have what is called negative real rates. It's rare for the overnight real rate to be negative.  If you check the same sources for historical data you'll find it's usually higher.  This is because borrowing money is usually done to gain an economic benefit, ie. make a profit.  That is no longer a consideration when borrowing money short term and is IMO a serious problem.  This will cause poor investment decisions like you see in housing. Notice I said overnight rate.  That is the only rate set by the BoC and the longer rates are set by the market.  The central bank has some influence because a longer term is just a series of shorter terms but if you looked up the rate on long Canadian real return bonds, you'd see them with a real rate around 1%. What happens when the central bank raise or lowers rates will depend on the circumstances.  The rate in India is so high because they are using it to defend the rupee.  If people earn more interest they have a preference to buy that currency rather than others.  However these people aren't stupid, they realize it's the real rate that matters.  That's why Japan can get away with very low rates and still have demand for the currency - they have, or had, deflation.  When that changed, the preference for their currency changed. So if Canada hast forex driven inflation then the BoC will have to raise rates to defend the dollar for the purpose of lowering inflation from imports.  Whether it works or not is another story.  Note that the Canadian dollar is very dependant on the total dollar value of net oil exports. If Canada has inflation due too an accelerating economy this implies that there are profitable opportunities so businesses and individuals will be more likely to pay a positive real rate of interest.  In that scenario the demand for credit money will drive the real rate of return. "It is important to distinguish between cause and effect as well as the supply (saving) versus demand (borrowing) side of money to understand the relationship between interest rates, bond yields, and inflation. What is mean by ""interest rates"" is usually based on the officially published rates determined by the central bank and is referenced to the overnight lending rate for meeting reserve requirements.  In practice, what the means is, (for example) in the United States the Federal Reserve will have periodic meetings to determine whether to leave this rate alone or to raise or lower the rate.  The new rate is generally determined by their assessment of current and forecast national and global economic conditions and factors in the votes of the various Regional Federal Reserve Presidents.  If the Fed anticipates economic weakness they will tend to lower and keep rates lower, while when the economy seems to be overheated the tendency will be to raise rates. Bond yields are also based on the expectation of future economic conditions, but as determined by market participants.  At times the market will actually ""lead"" the Fed in bidding bond prices up or down, while at other times it will react after the Fed does.  However, ignoring the varying time lag the two generally will track each other because they are really the same thing.  The only difference is the participants which are collectively determining what the rates/yields are. The inverse relationship between interest rates and inflation is the main reason for fluctuating rates in the first place.  The Fed will tend to raise rates to try to slow inflation, and lower rates when it feels inflation is too low and economic growth should be stimulated.  Likewise, when the economy is doing poorly there is both little inflationary pressure (driving interest rates down both in terms of what savers can accept to keep ahead of inflation and at) and depressed levels of borrowing (reduced demand for money, driving down rates to try to balance supply and demand), and the opposite is true when the economy is booming. Bond yields are thus positively correlated to inflation because during periods of high inflation savers won't want to invest in bonds that don't provide them with an acceptable inflation adjusted yield.  But high interest rates tend to have the effect or reining in inflation because it gets more costly for borrowers and thus puts a damper on new economic activity. So to summarize," "I have to disagree with you.   **Money is a store of value with which you can redeem your accumulated work for a  good or service you need, at any time.** Therefore, you don't have to wait until your crop has perished to trade it for what you need.  Any store of value that is not purely useful in terms of ""I can consume this"" or ""I can turn this into value directly through labor"" is essentially an IOU. It would be more accurate to say, in the context you provide, that for every asset (your apples) there exists an equivalent combination of liability (what you had to borrow to produce the apples) and equity (what you put in of your own in order to get the apples).  Since gold in this very simple hypothetical system has absolutely no use other than a **store of value**, it *is* debt. It is the promise that you will at some point in your process of transactions acquire the utility that you require. You can't fertilize with gold, but you can buy fertilizer. **Until you buy that fertilizer, you've only traded your harvest for a promise that you *can* buy your fertilizer.**  Something otherwiseyep didn't elaborate on very much, though he mentioned it and it is integral to his story, is the time value of money. That is, if I can borrow 10 gold pieces today for my future work accumulated, I'll pay you back 12 when it's done. This has an effect greater than just injecting value into the economy. It ensures that the negative value experienced by *not* having those 10 gold pieces will be compensated. Credit provides an opportunity for planning for the cyclical nature of markets. It provides an opportunity to make your transaction now - that you don't have to wait until harvest to trade your deer skins for apples.  &gt;Economists like Paul Krugman seem to believe that everything can be fixed by increasing demand, but they totally ignore the costs of production. There exists plenty of demand in the US economy right now, but the cooper has died, the barrels must be brought from China.  I also disagree with this. Krugman emphasizes the *importance* of demand-side measures, not their exclusivity. Any policy must account for cost curves, and that economic profit for any firm is maximized when marginal revenue (the revenue increase or decrease of a single unit added to production) is equal to marginal cost. The U.S may have some demand right now, but if the cost of production were truly the issue, then these firms would be adjusting their capacity, and not sitting on trillions of dollars of currency that ought to be liquid.   If demand was really that high, companies wouldn't be stuffing their mattresses right now to keep the money injected into the economy by QE *out* of circulation. The real problem is that while  in the last few decades consumption has been climbing steadily, real wages have flat-lined, and now we have high unemployment. We can't raise wages, we can't hire more workers, and we still want our cars and houses and corn syrup and lead-filled toys.  This, I think we can agree, is where credit goes wrong: the gap between consumption and wages was filled with credit. The housing bubble manifested itself thus: not as simply a boom in quantity and a lowering in price, but a lowering in price as a result of faulty (dishonest and misleading) risk assessment - (by the same folks who downgraded US debt), and an implosion as a result of that debt systematically dissolving through defaults and foreclosures (to put it very, very, very, simply).  Instead of an increase in consumer credit, we need greater investment by the companies who currently sit on trillions of dollars of frozen cash. Those investments could be better managed, with transparent risk assessment and greater restrictions on lending policy.  Or, ideally, that money could be used to hire workers, expand plants and lower marginal costs.  To tie it back to your concluding paragraph, credit makes it possible to satisfy the demand for those barrels of apples by buying them at a fair market value from China. If it weren't for China's ability to provide the apples at a ""fair"" price (you can, for our purposes here, consider this price to be fair market value if you make a transaction - the selling price equals the buying price), there would be an apple shortage, and the price of apples would climb ridiculously high." The monetary supply isn't a fixed number like in the old days of the [gold standard](https://en.wikipedia.org/wiki/Gold_standard) is part of the answer. Also, the actual spending of that one thousand dollars -- where the money is spent and on what -- does make a significant difference on how the overall economy is effected: People spending it on food, transportation and housing isn't going to drive up the costs of a Porshe 911. Hmm... I don't understand how big of an impact that would have in the long run. In the short-run, I can see it being an issue due to price-inflation.   But long-term, wouldn't the market adjust accordingly? If the prices are raised beyond the individual households' disposable income, people will simply find alternative products.   I guess it would be a terrible thing if they controlled something that is necessary to us. But if that happens, I imagine a revolution will start.   What incentives do the large companies have in doing this? For aggregate demand:  we've built an economy that depended on credit to fuel demand so it should be no surprise that a correction in the market slowing down demand because its not easy to get credit as much as it used to.  Economic growth should be built on productivity and savings not endless credit.  For interest rates:  Companies are no longer expanding because they have already over expanded.  Over the past few decades companies have been enticed with cheap rates, encouraged by the fed and governments, to capitalize their productivity to supply an inflated/manipulated demand.  If it wasn't for all of this cheap rates, producers would not have incorrectly over capitalized.  For currency:  We live in a world where many of the products we buy/sell are made with imported and domestic parts.  So cheapening our currency will also increase the prices of the goods we buy at Walmart, Best Buy, Apple stores etc.  If we lived in a country/society where domestic products are truly domestic made and resourced then there would be some benefit to devalue our currency for gain of export.  Besides, like you said, I doubt other countries are just going to sit idle and watch us continue printing money to make our dollar worth less... they will respond the same way.  Regarding supply and demand, it is a circle... so supply needs to also be cheap enough to encourage people to demand it.  So giving money to people so they spend it is not going to fix anything.  For Gators:  Go Gators! Well i'm not saying it will be terrible, i could have said this wrong but it might be terrible. Dollar is not the international currency just in oil but mostly everything. Different countries uses dollar to trade, this is one of the core reasons of US economy being the strongest. US should not be tolerant about this sort of stuff since if this trend continuous it could be disastrous. General advice for novice investors is to have the majority of your holdings be denominated in your home currency as this reduces volatility which can make people squeamish and, related to your second question, prevents all sorts of confusion. A rising CAD actually decreases the value (for you) of your current USD stock. After all, the same amount of USD now buys you less in CAD. An exception to the rule can be made if you would use USD often in your daily life yet your income is CAD. In this case owning stock denominated in USD can form a natural hedge in your life (USD goes up -> your relative income goes down but stock value goes up and visa versa).  Keep in mind —as mentioned in the comments— that an US company with a listing in CAD is still going to be affected by price swings of USD.