The consequences of a high CAD

• risks with a sustained high CAD:
  • The growth of foreign liabilities
    • due to overseas debts
    • self perpetuating as it appears as a negative on the current account

  • Increased servicing costs

  • Increased volatility for exchange rates

  • Constraint on future economic growth
    • a high CAD can become a bottleneck on economic growth
  • More contractionary economic policy
    • if necessary, to reduce a high CAD in the short term
    • e.g. raising interest rates

  • A sudden loss of international investor confidence