Concordia Journal Home > Archives > April 29, 2010 issue >

Strong dollar built on strong foundation 

Professor analyzes sometimes-illogical lending practices

By Karen Herland

While most of the world’s economies are pulling themselves out of the wreckage of the most recent financial crisis, Canada is riding high with the strongest dollar in more than three decades.

“Basically, we are benefitting from a solid world perception and rising commodity prices,” said Arvind Jain, Associate Professor of International Finance and Business. Jain has been monitoring international financial developments from a managerial perspective, especially the impact of exchange rate fluctuations and financial crises, since the debt crisis of 1982.

“Then the poorer countries suffered, this time, we suffered.”

While surveying the fallout of a series of dubious decisions made by international banks and governments in 1982, Jain posed the question: “How can people lend money to somebody clearly incapable of paying it back?”

The current crisis was precipitated by spiraling loans, especially in the American real estate market, to buyers whose credit was inadequate, and inadequately verified.

“We refuse to learn from history,” said Jain. He does not see greed as the source of the problem, since that has been a constant in good and bad economies, and is almost built into the structure of our economic system.

Jain held positions or taught courses on every single continent with the exception of Antarctica. He joined Concordia’s faculty in 1990.

He argues that there will always be an economic bubble built around some asset that invites speculation, be it dot-com companies in the 90s, or tulips in the 15th century. “Everyone knows that the bubble will burst one day they just are certain they will get out before it does,” Jain said, adding, “they believe they are better off getting on board than missing it entirely.”

He locates the problem as a poor regulatory structure, and said Canada’s financial institutions were able to avoid the worst of the damage by being protected from risks through strong, and strongly enforced regulations.

More importantly, the current strength of the dollar, since it is based on external factors, is more likely to build and deflate at a slow steady rate, instead of a dramatic and potentially devastating burst.

More recently, Jain has been considering the impact of corruption as another factor in these calculations.