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US Treasury Secretary Steven Mnuchin is taking care of Vietnam and Switzerland. Image: keystone
Switzerland “manipulates” its currency: US sanctions are not (yet) a problem
Until now, Switzerland has missed the “calamity”. Now there was no escape: the US Treasury Department accuses the Swiss Confederation of manipulating its currency and depressing the franc. This is the case in the latest report on the exchange practices of the main trading partners, which was published on Wednesday.
Even the “Financial Times”, a leading business outlet, reported prominently on Washington’s verdict, which affected both Vietnam and Switzerland. The two countries meet the three criteria established by the United States Treasury, the first since 2015 and the first publication of a report on the subject.
The gold trade creates a special effect in favor of Switzerland. Image: sda
A thorn in the side of the US authorities is Switzerland’s merchandise trade surplus with the United States, which has once again exceeded the $ 20 billion mark set by the ministry. For four quarters to mid-2020, Switzerland has significantly expanded the surplus to $ 49 billion, and thus is above targets, it is said.
Excess thanks to pharmaceuticals
This surplus is mainly due to pharmaceutical exports. This year there was also a special effect due to the corona pandemic due to the increased global demand for gold. Switzerland is a major trading center for precious metals, and the US has also sourced from us on a large scale.
Using the second criterion, Americans examine a country’s current account and rely on analysis by the International Monetary Fund (IMF). Compared to gross domestic product (GDP) in mid-2020, Switzerland’s surplus was 8.8 percent, well above the 2 percent threshold set by the Treasury.
Switzerland now also meets the third criterion. These are the interventions of the National Bank (SNB) in the foreign exchange market. The crisis in the crown made the franc a coveted escape coin once again, which is why the SNB has intervened vigorously in the markets this year, according to its own information, with 90 billion francs from January to June alone.
The interventions of the National Bank were criticized by the Americans. Image: keystone
According to the Treasury report, Switzerland has “undertaken large-scale unilateral interventions, much larger than in previous cases, to prevent the appreciation of the franc and reduce the risk of deflation.” US Treasury Secretary Steven Mnuchin announced that they wanted to work to eliminate such practices.
Serenity in Bern
The National Bank reacted quickly to the report. In view of the economic situation and the continued high valuation of the Swiss franc, the company is still ready to intervene more “intensely” in the foreign exchange market, he said. The SNB emphasized that the objective is not to obtain unjustified competitive advantages for the Swiss economy.
The Bern Finance Department is demonstratively relaxed. The Secretary of State responsible for international finance (SIF) awaited the verdict of the Americans. He is convinced that the US Treasury recognizes Switzerland’s “special reasons.” Switzerland has a good case for all three criteria.
Avoid overvaluation
The trade balance with the US has been practically balanced if services are included in addition to merchandise trade. The current account surplus is not driven by the exchange rate, but by the high savings rate (including pension funds) in Switzerland, which is typical of countries with a fairly old population.
It is by no means certain whether things will improve with the new Treasury Secretary, Janet Yellen. Image: sda
In the end, the National Bank did not intervene to artificially weaken the Swiss franc, but rather to prevent it from being overvalued. For the moment, the SIF is not afraid of US sanctions. Indeed, controversial points should be clarified in bilateral talks, the US Treasury writes.
What does the new government contribute?
However, there is some uncertainty, it is admitted in Bern. It is reinforced by the change of government in the US The Treasury took “a more aggressive stance than previous governments” against the exchange practices of trading partners during the Trump presidency, writes the Financial Times.
It is not clear if things will improve with President Joe Biden and new Treasury Secretary Janet Yellen. Unions and the left wing of Democrats are also calling for “tougher trade measures against countries that artificially weaken their currencies and thereby harm American exports,” writes the New York Times. It should remain difficult for Switzerland.
With Keystone-SDA material
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