Nov. 2 (Bloomberg) -- A strong Canadian currency benefits business in the nation’s second-most populous province because it allows companies to upgrade equipment more cheaply, said Quebec’s economic development minister, Clement Gignac.

“A weak dollar such as the one we had for several years was a tax on productivity,” Gignac, former chief economist at National Bank Financial, a part of Canada’s sixth-largest bank, told reporters today in Montreal. It cost companies up to 50 percent more to upgrade equipment to boost productivity, he said. “Now that we are getting closer to par, companies no longer have this tax.”

Canada’s dollar touched a low of 61.76 U.S. cents in January 2002, or C$1.6193 to the U.S. dollar, on concern a recession in the U.S. would decrease demand for Canadian goods. It traded today at 92.79 U.S. cents, or C$1.0770 to the greenback.

Businesses in Quebec invested a record C$4.8 billion ($4.4 billion) last year, proof they are taking advantage of the stronger currency, according to Gignac. The Canadian dollar traded near parity with its U.S. counterpart for more than eight months last year, before the greenback surged as investors sought its safety after the bankruptcy of Lehman Brothers Inc. in September 2008.

Quebec is home to about 7.8 million people, according to Statistics Canada. Ontario is the biggest province, with 13 million people.

Canada’s currency, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, averaged about C$1.31 to the U.S. dollar over the past 20 years, according to Bloomberg data. It appreciated to parity in September 2007 for the first time in three decades, boosted by a boom in prices for commodities.

‘More Stable Dollar’

The loonie touched C$1.0207 on Oct. 15, the closest to trading equally with the U.S. currency since July 2008. It gained 19 percent this year to Oct. 19, the day before the central bank decided to keep interest rates at a record low. Policy makers also stepped up warnings the stronger currency would hurt economic recovery because it makes exporters less competitive. It dropped 4.7 percent since then.

“The biggest problem for companies isn’t so much the level of the dollar but the speed at which it rose,” Gignac said. “We are hoping for a more stable dollar in the next two to three years, but nobody can control that, not even the governor of the Bank of Canada.”

Bank of Canada Governor Mark Carney speaking at a press conference in Ottawa on Oct. 22, said “intervention is always an option” for the bank if policy makers feel the rise in the Canadian dollar threatens their inflation target. Central banks intervene by buying or selling currencies to influence exchange rates.

Carney reiterated the bank has a number of tools it could use to help inflation reach its 2 percent target. The bank hasn’t intervened on its own to affect the value of the currency since 1998.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net

Last Updated: November 2, 2009 16:46 EST