I'm happy to clear the good name of the Dutch. We'll speak in terms of the importance of commodities and commodity prices for the Canadian economy.
Let me start by underscoring that at the Bank of Canada we use, for forecasting purposes, 20-plus models, but our core general equilibrium model is called ToTEM. It's a terms-of-trade model. We run a terms-of-trade model because of the importance of the prices we receive for our exports—of which an important component is commodities—and the prices we pay for imports. This is at the heart of how we forecast and how we look at the Canadian economy, because the multiplier effects are that large. That's the first point.
The second is that when we look at past experience, only in rare exceptions—and I mentioned one in response to Mr. Jean's question—does an increase in commodity prices not benefit the Canadian economy.
One of the things that is drawn out in our analysis, which I referred to in a speech I gave in the summer, is that one of the challenges we have in the Canadian economy now is that historically what drove commodity prices was U.S. demand. That was the most important thing. So you'd have higher U.S. demand, higher commodity prices, but also obviously higher U.S. demand for the other goods that are produced by the Canadian economy, manufacturing goods. That was very positive for Canada and it remains very positive for Canada.
But the U.S. is not pricing commodities these days. If you had to pick a region, you'd say Asia is pricing commodities. Our economy is less oriented to Asia. So an increase in commodity prices, to put rough figures on it, that's driven by the U.S. is about three times as positive for Canada as one driven by Asia, but an increase in commodity prices driven by Asia is still materially positive for the Canadian economy, despite the fact that it also encourages, all things being equal, a rise in our exchange rate. The reason for this is the income effects on those commodity producers, because of the direct investment effects—which are driven not just in the oil patch but in mining, forestry, and other areas—and because of the revenue effects to all levels of government, including, very importantly, the federal government.
The federal government takes about 40% of the revenues, as you know, Brian, on an all-in basis from your riding, or, more broadly, from the oil sands, and then, importantly, because of the linkages through this economy—which are much stronger east-west than they are north-south—into the manufacturing parts of our economy and the services parts of our economy, which are linked into the commodity sectors.
I will make two other points, if I may, Chair. One is that we don't see commodity prices being elevated as a temporary phenomenon. They go up; they go down. We have this discount issue on WCS western crude. But we see the transformation of the global economy that is taking place. There is commodity-intensive growth being driven by an emerging Asia, which is supporting commodity prices as a whole. This is core to the old “Dutch disease” thesis: you had a temporary spike in a commodity, and then it came down and you shifted resources. We see this as more permanent.
The last point is that, as per other questions, there are a variety of factors that drive our currency. There are the terms of trade, but also our better fiscal position, our monetary policy credibility—we're a safe haven—the strength of our banking sector, and, it has to be said, the fact that there has been in recent years an understandable generalized weakness in the U.S. dollar and a diversification of currencies internationally out of the U.S. dollar and out of the euro. There are relatively few other places to go. So a variety of these factors are supporting our currency.
We see the need to respond to those realities and drive not just monetary policy—though ultimately we care about the outlook for growth and inflation in Canada—but a broader suite of policies that reflect those dynamics.