This article appeared previously in Canadian FundRaiser

Sometimes being the mouse sleeping with the elephant is more hazardous than other times. For example, right now, most Canadian not-for-profits collecting donations from their generous fellow citizens to “do good” beyond our border are having to run faster than ever just to stand still in the race to maximize the purchasing power of those funds. The culprit? No individual, or indeed the “elephant” itself – our large and dominant neighbour, the United States – but rather all those complex interactive economic forces which currently decree that our Canadian dollar ranges from below to just above the 65¢ level, relative to the US dollar.

Even for those charities which do not distribute their funds directly through US headquarters as some do, the problem of an undervalued currency looms to one degree or another, because virtually all economic activities in the world end up pegged in one way or another to the superpower’s currency. For example, Foster Parents Plan of Canada (FPP) works through headquarters in the United Kingdom, where its sponsors’ donations – along with those of 13 other national organizations – are converted to US DOLLAR before being distributed to the communities housing sponsored children.

“It’s a very complex issue,” insists FPP controller Jennifer McMillan. “The headquarters plays a treasury function, for example entering into forward contracts to minimize the effect of currency fluctuations. Naturally, hedging and timing delays can also affect the issue.” The potential weakening of the value of Canadian sponsors’ contributions to Plan can also be affected by donee countries’ currency fluctuations vis-à-vis ours, she points out. For example, our dollar is weakened in relation to the US dollar and also to Bolivia and Kenya; but it is strengthened vs Indonesia and Ecuador.

More complex than just currency bumps

McMillan further cautioned those looking at the issue to beware of assuming currency fluctuations are the only determinants of maximization of donation effectiveness. In fact, actual purchasing power of the contributed dollars is influenced to an even greater extent by the degree of inflation in the receiving country, she points out. In addition, the effects of currency fluctuation are mitigated for Plan by the fact it sources goods and services locally, rather than buying them centrally and sending them into the receiving country. “So the relative purchasing power of the local currency is an important factor in getting the most for the sponsors’ money,” McMillan says.

Also urging caution before panic over the issue is Richard Harmston, executive director of The South Asia Partnership (SAP). However, his organization deals much less with the US than many of its counterparts operating in the Third World. Because SAP works directly with partner organizations in the South Asia area, maximization of its donors’ contributions depends on fluctuations vis-à-vis those local currencies, Richard says. “The Asian currencies all have their own problems and sometimes, we all go down together,” he shrugs. Pakistan, Bangladesh, even India are experiencing problems with their valuations.

Save the Children Fund, on the other hand, is feeling the pinch of the weakened Canadian dollar. “We have to work harder to make up what we lose on the exchange rate,” says Frank Greco, director of marketing and communications. “We wait for a more favourable rate when we can, and our finance department is always looking for ways to get the most bang for our bucks, but sometimes we have structured agreements and have to pay in US dollars when the bills come due.”

“Lower loonie has a two-pronged effect…”

Marvin Frey, executive director of the Mennonite Central Committee (MCC), finds his organization in the same boat. In fact, the MCC suffers the deleterious effect of a below-par dollar in two directions – the Canadian dollars it sends out to needy communities in the Third World don’t buy what they should because purchases have to be made in US dollars, and the crafts it imports from client villages come into Canada at higher prices. “So the lower loonie has a two-pronged effect on us,” Marvin says. “And there doesn’t seem to be much we can do about it beyond learning to live with it, and hoping it’ll change down the road.”

On the brighter side, Frey says the committee’s support has been “very strong”. Donors are aware of the problem and trying to make up for the deficiency with increased contributions.

Size probably plays a factor in the degree to which the low valuation of the Canadian dollar hurts a charity. World Vision Canada has been quoted as stating that “for every penny the dollar goes down, we lose $1 million.” In other words, if the budget calls for $80 million in overseas spending, WVC has to find an extra $1 million every time the dollar dips.

One wonders if these implications for those less fortunate than ourselves and far beyond our own borders are ever in the minds of the “gnomes” in Ottawa and on Bay Street who play the economic tunes which determine such standards as our international currency strength.

For further information: Jennifer McMillan, Foster Parents Plan, (416) 920-1654, X 261, fax (416) 920-9942, e-mail n-cno@plan.geis, com; Richard Harmston, South Asia Partnership, (613) 241-1333, fax (613) 241-1129, e-mail sap@web.net; Frank Greco, Save the Children, (416) 221-5501, X 238, e-mail sccan@savethechildren.ca; Marvin Frey, Mennonite Central Committee, (204) 261-6381, fax (204) 269-9875, e-mail mccott@web.net; Philip Maher, World Vision Canada, (905) 821-3030, fax (905) 567-2744.