Central Banks

Swiss central bank chief rejects 'currency manipulator' label from the U.S.

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Key Points
  • The U.S. Treasury added Switzerland to a list of nations it suspects of deliberately devaluing their currencies against the dollar.
  • The Swiss National Bank has long maintained a willingness to intervene more robustly in foreign exchange markets, and has staunchly denied manipulating the Swiss franc.
  • The U.S. Treasury said Switzerland's interventions totaled 14% of GDP.
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Swiss central bank chief rejects 'currency manipulator' label from U.S. government

LONDON — 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 Swiss National Bank has long maintained that it is willing to intervene more robustly in foreign exchange markets, and has staunchly denied manipulating the Swiss franc. The U.S. Treasury said Switzerland's interventions totaled 14% of gross domestic product.

To be labeled a manipulator, countries must have a $20 billion-plus bilateral trade surplus with the U.S., foreign currency intervention exceeding 2% of GDP and a global current account surplus higher than 2% of GDP.

Treasury Secretary Steven Mnuchin said his department had taken a "strong step" to "safeguard economic growth and opportunity for American workers and businesses."

President-elect Joe Biden's choice for Treasury secretary, Janet Yellen, could revisit the findings when she delivers her first currency report, expected in April.

Addressing the imminent change of administration, Jordan said the SNB looked forward to an "intensive and constructive dialogue" with the Biden team.

"We will try to explain the specific situation of Switzerland regarding these criteria, and we will explain again why these criteria do not really come to the right conclusion regarding Switzerland, and that we can demonstrate that we are not a currency manipulator," he said.

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Strategist: Switzerland's currency manipulator label not a game changer

Earlier Thursday, the SNB kept its monetary policy stance unchanged, holding interest rates at a record low of -0.75% and striking a cautious tone. The bank said a second wave of Covid-19 infections was likely to mean a weaker fourth quarter of 2020 and first quarter of 2021, noting that "production factors will remain underutilised for some time yet."

'Storm in a teacup'

David Oxley, senior European economist at Capital Economics, suggested in a note Thursday that Switzerland will be able to dial back its interventions in foreign exchange markets next year.

"However, this is because we expect a pick-up in risk sentiment to relieve pressure on the franc against the euro, not because of the US Treasury's actions," Oxley said.

"The bigger picture is that Switzerland has always been treated as a special case when it comes to exchange rate policy and even the U.S. Treasury has conceded in the past that Switzerland's economic situation is 'distinctive' and that its monetary policy options are limited by its small stock of domestic assets."

With the incoming Biden administration expected to be less adversarial in its approach to trade and international relations, Oxley suggested this issue could prove to be a "storm in a teacup."

High Frequency Economics chief economist Carl Weinberg on Thursday disagreed with the Treasury's characterization and suggested it could also be fleeting.

"I certainly don't understand how declaring the Swiss to be a currency manipulator advances the interests of the United States, or makes anything better for anyone doing business, and of course there are no consequences to being labeled a currency manipulator either, so this is what the current Treasury secretary is doing, and there will be a new Treasury secretary in a few months," Weinberg told CNBC's "Squawk Box Europe."

He suggested that the incoming administration would focus more on attempting to "build friends around the world rather than establish antagonistic relationships."