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.