If what we are worried about is an overvalued CDN dollar which is caused by speculative flows then why the focus on the Bank of Canada? Exchange rates are not really in the BOC’s mandate. Sure in the case where an appreciating CDN dollar is causing further deflationary pressures it could be argued that exchange rates are within the purview of the Bank’s mandate.
But the BOC is a conservative (in both the ideological and cultural sense) institution. Canada does not face the same structural dynamics (problems) as the UK and the US. And thus I doubt arguments for non-conventional monetary policy responses are going to get very far with the Bank. Moreover there are downside risks to pursuing unconventional monetary policy. We might get a lower exchange rate at the expense of perverse side-effects. So forget the BOC; leave them out altogether.
Thankfully, however, when it comes to exchange rates there are policies available to the government. On such policy could be called an Investment Inflow Tax Equilibration program (INVITE). It would work like this. A simple 2% tax on all inward portfolio investment (as Brazil just announced) would help stop appreciation in its trax. Second if we really think much of the dollar’s appreciation is being driven by gas and oil then an additional 2% tax on all oil and gas investment inflows regardless of the type (portfolio or direct) would help further dampen the speculative plays in that sector. The terminator seed on the INVITE program would be when Canada’s manufacturing sector returned to some degree of health.