Posted on Dec. 2020 at 17:43Updated Dec 16. 2020 at 17:44
The United States on Wednesday designated Switzerland and Vietnam as countries manipulating their currencies. The US Treasury considers that they meet the three quantitative criteria identifying those who are suspected of practicing competitive devaluations to the detriment of the United States within the framework of the “currency war”.
Twice a year, the Treasury scrutinizes the exchange rate policies of the 20 main trading partners of the United States. He then engages in a more or less muscular dialogue with those he considers at fault. Commercial or financial retaliation can be decided at the end of the discussions.
Between June 2019 and June 2020, 4 countries (Switzerland, Vietnam, India, Singapore) intervened on the foreign exchange market to limit the rise of their currency against the dollar. Their interventions represented at least 2% of their gross domestic product. But only Switzerland and Vietnam meet the other two criteria (a trade surplus of at least $ 20 billion with the United States over 12 months, and a current account surplus of at least 2% of its gross domestic product) which earned them the qualifier of “manipulator” of their currencies.
The US Treasury admits that Switzerland has extenuating circumstances in the context of the COVID-19 crisis. The franc is a safe haven currency favored by international markets during crises and which can rise sharply in these extreme conditions. Washington, however, criticizes the Swiss authorities for having intervened massively to sell francs and repeatedly.
Between summer 2019 and June 2020, the interventions of the Swiss National Bank amounted to 103 billion dollars (14% of its GDP), of which 93 billion in the first half. For the United States, Switzerland has not only acted ” self-defense “ faced with markets in search of a safe haven currency but indeed as a monetary aggressor. Its action is therefore partly responsible for the trade deficit of the United States with Switzerland, which reached 49 billion dollars over 12 months.
The Treasury invites Switzerland to consider other monetary policy measures (asset buyback plan) rather than relying primarily on foreign exchange interventions to limit the risk of deflation. Selling the franc in an exceptional way is understandable for Washington, but this practice is suspect when it takes root over time. Switzerland does not manipulate ” never “ its currency, retorted the SNB. Its interventions are part of its monetary policy and do not aim “To obtain an unjustified competitive advantage”.
Asia under surveillance
The Treasury’s watch list mainly includes Asian countries (Malaysia, Korea, China, Thailand, Taiwan, Singapore) as well as India. All meet two of the three criteria and therefore deserve special attention. China, the country which has the largest trade surplus with the United States (310 billion dollars) has seen its currency rise this year (+ 6.6%) to Washington’s satisfaction. However, if the People’s Bank of China has refrained from intervening in the market to limit the rate of appreciation of the yuan, the US Treasury suspects that certain Chinese public banks have intervened discreetly on behalf of the central bank.