Home Economics Jeebus, Of Course Switzerland Is A Currency Manipulator

Jeebus, Of Course Switzerland Is A Currency Manipulator



The US Treasury has announced that it regards Switzerland as a currency manipulator. At which point all the Swiss start shouting no, we ain’t. The truth being that of course they are. The Swiss National Bank is one of the largest currency speculators in the world.

It’s such righteously and justly of course, but it is still so:

Swiss National Bank President Thomas Jordan has rejected a U.S. decision to label Switzerland a “currency manipulator.”

The U.S. Treasury on Wednesday added Switzerland to a list of nations it suspects of deliberately devaluing their currencies against the dollar.

Jordan told CNBC on Thursday that neither the SNB nor Switzerland itself has artificially manipulated the value of the Swiss franc.

“Our monetary policy is necessary, it is legitimate, and we have a very low inflation rate — it is even negative at this moment — so we have to fight this deflation, and the Swiss franc is very strong, so it appreciated in nominal terms over the last 12 years enormously, both vis-a-vis the euro and vis-a-vis the U.S. dollar,” he said.

The basic problem is that the Swiss National Bank hasn’t pissed all over the value of the currency for the past 50 years. FX rates should, over time at least, track the difference in inflation rates between currencies. One proof of this being that the Swiss Franc has had – over time, over time – lower inflation rates than pretty much everyone else. Therefore the value has risen against those other currencies.

OK, fair enough.

But it’s what happens next which is the problem. Say some – or all – governments decide to inflate the hell out of their currencies. Or perhaps just their money supplies with QE. You know, along with those promises – honest guv! – that if any actual inflation showed up they’d take care of it real soon now. People who like the idea that their own money will be worth next year roughly what it is this year will therefore sell those other currencies and buy Swiss Francs.

Which is what has been happening. Big time. The gradual rise in CHF value as the different inflation rates play out is fine. It’s the gargantuan leaps from floods of capital influx that can’t be dealt with. So, the SNB has been manipulating the value of the currency. What it actually does is when someone buys CHF is prints some new stuff for them. Then keeps the FX receipts from the sale down in the vaults. In this manner the new demand is met by new issuance and that’s backed by – and thus reversible – the FX.

They’ve been doing this in gargantuan amounts for years now. As the flood of capital looking for just certainty of future value has been washing in.

This is, of course, currency manipulation. It’s government action to change the value of the currency as opposed to what an entirely free market would produce. It also seems fair enough. For they’re only trying to compensate for the effects upon Switzerland of everyone else inflating their currencies away. You know, the spillover effects of other peoples’ fiscal incontinence.

So, yes, Switzerland is a currency manipulator. Justifiably so.



  1. Three interesting points. One, Tim admits that QE is massively inflationary. Two, fiscal responsibility hasn’t helped the Swiss much. Citizens commonly hop over the border to buy graceries in France at half the price. Three, Swiss watches being a luxury good, if they rise steeply in price that can only be a good thing, can’t it?

  2. I don’t think Our Timmy admits that QE is massively inflationary. All that is necessary for this to happen for sufficient numbers of people to believe that it could be massively inflationary at some point in the future, and that they are working on the assumption that governments will no do what is necessary to prevent this from being so. Can’t say I disagree, but it is the risk of future inflation that is driving this, not actual current inflation.

    Basically, has the M0:M3/M4 ratio experienced a secular change, or will it eventually return to where it was in 2006? Don’t know, don’t want to find out -> buy CHF.

    If the Swiss get access to cheaper imports, how is this “not helping [them]”? Imported deflation caused by imports getting cheaper is not generally considered to be a problem for the local economy, especially where those imports are not substitutes for domestic production. If Hans and Johanna decide to wait until next year to import a new TV because it’ll be cheaper then, this does not have a significant effect on the Swiss economy.

    Swiss watches are not just a luxury good, in many cases they are a Veblen good, which is where this doesn’t matter.


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