This week, the US Treasury reviewed and assessed the currency policies of 20 major U.S. trading partners during the four quarters ending June 2020.
The report concluded that both Vietnam and Switzerland met all three criteria for currency manipulation under the Trade Facilitation and Trade Enforcement Act of 2015.
The three tests include a significant bilateral trade surplus with the United States, a material current account surplus of at least 2% of GDP over a 12-month period, and persistent one-sided currency intervention involving repeated net purchases of foreign currency.
It is no secret that the Swiss National Bank (SNB) has been actively trying to weaken the Swiss franc.
The US Treasury report said that the Swiss franc has long been considered a safe haven currency that investors acquire during periods when global risk appetite recedes or financial volatility accelerates. These large safe haven flows pose challenges for Swiss macroeconomic policymakers, particularly in a period of negative interest rates and deflation. The Swiss National Bank (SNB) over the years has employed a range of tools to try to offset appreciation pressure on the franc and limit any associated negative impacts on inflation and domestic growth.
According to the US Treasury, over the second half of 2019 and particularly in the first six months of 2020, Switzerland conducted large scale one-sided intervention, significantly larger than in previous periods, to resist appreciation of the franc and reduce risks of deflation, as the SNB’s policy interest rates were significantly negative. While we recognize the extraordinary financial volatility in the first half of 2020 resulting from the COVID-19 crisis, the intervention was taken in the context of an extremely large current account surplus along with a growing bilateral trade surplus with the United States and contributed to stemming the appreciation of the franc on a real, trade-weighted basis, it said.
Further franc appreciation would help facilitate gradual adjustment of Switzerland’s excessive current account surplus, said the US Treasury report. The US Treasury therefore assesses, based on a range of evidence and circumstances, that at least part of Switzerland’s exchange rate management over the four quarters through June 2020, and particularly its foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments. Hence, the Treasury has determined under the 1988 Act that Switzerland is a currency manipulator. In the context of forthcoming negotiations with the Swiss authorities, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments.
Ten other nations fell short of the the definition of currency manipulator but ended up on a US Treasury watchlist. These countries include Germany, Japan, Italy, Taiwan, India, Thailand, China,
Reacting to the news the Swiss National Bank (SNB) told RTS that it was in contact with its US counterparts to explain Switzerland’s economic and monetary situation.
“In no instance has Switzerland engaged in monetary manipulation” said the SNB in a statement. “SNB interventions in the currency market are not aimed at preventing adjustments in the balance of payments nor to obtain an unjustified competitive advantage. Swiss monetary policy requires intervention to guarantee appropriate monetary conditions and price stability in Switzerland”, wrote the SNB.
At the end of September 2020, the SNB had currency positions worth CHF 884 billion on its balance sheet.
US Treasury press release (in English)