The Week

Canadian dollar now world's fifth-largest reserve currency

The Globe and Mail

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Central banks and the loonie
Canada now boasts the world's fifth-largest reserve currency.

According to an International Monetary Fund report this week, central banks boosted their holdings of Canadian money to $108.9-billion in the second quarter of this year, up from $94.9-billion in the first three months of the year and $90.1-billion in the final quarter of 2012.

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That's well shy of the holdings of the top four currencies - the U.S. dollar, the euro, Britain's pound and the Japanese yen - but still a measure of the loonie's growing clout.

Chief currency strategist Camilla Sutton of Bank of Nova Scotia said central banks have been diversifying, and the Canadian and Australian dollars have seen higher volumes over the past few years. With the introduction of the euro in 1999, of course, several currencies disappeared, limiting choice, Ms. Sutton noted.

The longer-term focus of foreign exchange reserve managers, she added, will probably help support the loonie, as Canada's dollar coin is known, she added. Thus, when the currency is strong, this helps make it stronger than it otherwise would be. And supports it when it's weak.

The Canadian dollar is down about 4 per cent this year, and Scotiabank expects it to dip further still before “stabilizing” in 2014 at the 93-94-cent level.

From shutdown to slowdown
The partial shutdown of the U.S. government is beginning to take its toll on the economy, though not the markets. Yet.

IHS estimates that America is losing about $300-million (U.S.) in output a day, while BMO Nesbitt Burns calculates that each week of closure will shave at least 0.1 of a percentage point from fourth-quarter economic growth.

The main issue, however, is what happens if there's still a stalemate by Oct. 17, the day the Treasury Department says the government will be tapped out if the debt ceiling isn't raised. That has sparked fears of another credit downgrade and, in the extreme, a default.

"This is worth fretting about," said economist Thomas Feltmate of Toronto-Dominion Bank.

"Even without a technical default, the implication of the U.S. government missing a payment on any of its liabilities would be to challenge the 'full faith and credit' of the world’s reserve currency," he said in a research note Friday.

The Treasury Department went so far as to issue a report warning of the potentially "catastrophic" impact of a default and the threat of something worse than the financial crisis.

"The events of summer 2011, in which the government pushed very close to the limit show what might happen," said Mr. Feltmate.

"As the debt-limit date approached, both consumer and business confidence plummeted. The S&P 500 stock index fell 17 per cent and household wealth fell $2.4-trillion. Spreads on BBB corporate bonds and 30-year mortgages spiked, rising by 50 and 75 basis points, respectively, and remained elevated for the remainder of the year," he added in his report.

"At the same time, financial market volatility spiked to its highest level since the 2008-09 financial crisis and also remained elevated for several months. This all occurred even without an actual breach of the debt ceiling. Should one occur, the results would be severe enough to push the U.S. economy into a recession."

BlackBerry and the $9 mark
Investors are still skeptical that Fairfax Financial Holdings Ltd. will lead a consortium that will take BlackBerry Ltd. private at $9 (U.S.) a share.

Almost two weeks after Fairfax signed a letter of intent for a $4.7-billion deal, BlackBerry shares remain below $8, closing Friday at $7.69.

Fairfax chief executive officer Prem Watsa has said more than once that he's confident of following through, while sources have told The Globe and Mail there's interest among several potential suitors to join him in a takeover. Private equity firm Cerberus is also interested, though on its own rather than with Fairfax.

Still, doubt remains.

This comes amid a regulatory filing by BlackBerry showing stunning erosion in its business, even in its international strongholds, amid fierce competition in the smartphone industry.

"While we believe the most likely exit strategy for BlackBerry remains a sale to Fairfax Financial, we anticipate a lower revised bid post additional due diligence will be required to secure full institutional investor funding for Fairfax’s proposal," CanaccordGenuity analyst Michael Walkley said in a research note Friday.

Here's how Bank of Nova Scotia analyst Gus Papageorgiou sees it: "We have revised our probability assumption to a 50-per-cent chance there is a competing bid and the company gets taken out at $13.20. However, if there is no competing bid the Fairfax offer could go lower, simply because Fairfax will be the only ones at the table. We believe it could go as low at $8.00. Going too much lower would eventually drive some form of competing bid."

Just for fun, count the number of characters:
Twitter files document for $1B IPO, shows $69.3M 6-mo. loss, revenue of $253.6M, rising costs, 200M monthly active users, 500M daily tweets.

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Required reading
If you missed it last weekend, read our exclusive report on BlackBerry's fall from grace, by Sean Silcoff, Jacquie McNish and Steve Ladurantaye.

Major energy companies led by Imperial Oil Ltd. have applied to drill for crude in the Beaufort Sea, targeting an area that could require operations in the deepest water yet for the industry in the Canadian Arctic, Jeffrey Jones reports.

Cash-strapped wireless provider Mobilicity won court protection from creditors and new financing this week, in an attempt to stay alive long enough to sell itself to Telus Corp. Rita Trichur and Boyd Erman report.

B.C. Premier Christy Clark says her province is near an agreement governing taxation of liquefied natural gas exported from B.C., a deal that would pave the way for billions of dollars in new investment. Grant Robertson and Kelly Cryderman report.

From near-obscurity five years ago, agrifood has become a mainstay of the port of Hamilton, Ont., and the regional economy, Barrie McKenna writes.

Twitter Inc.'s filing with the Securities and Exchange Commission for an IPO offered the first public glimpse inside the social media company's financials. Omar El Akkad reports.

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