Interview: Economists criticize U.S. Treasury's methodology in labelling Switzerland as "currency manipulator"

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GENEVE, Dec. 20 (Xinhua) -- Three economists told Xinhua that they strongly disagree with the methodology used by the U.S. Treasury to label Switzerland as a "currency manipulator."

The U.S. Department of the Treasury on Wednesday said that Switzerland met all three criteria for currency manipulation during the four quarters ending June 2020.

In its Semiannual Report on International Economic and Exchange Rate Policies to the U.S. Congress, the Treasury laid out these criteria for potentially unfair currency practices, including a significant bilateral trade surplus with the United States, a material current account surplus, and a persistent one-sided intervention in the foreign exchange market.

"We find that all three criteria are misleading, based on flawed principles," said former Deputy Governor Stefan Gerlach at the Central Bank of Ireland, Professor Yvan Lengwiler at the University of Basel, and Emeritus Professor Charles Wyplosz at the Graduate Institute Geneva in a written interview.

On trade imbalances, they emphasized that the Swiss trade surplus with the United States is merely one bilateral relationship in Switzerland's foreign trade. The Swiss economy, due to its particularities, has different trade balances with different countries.

"These bilateral imbalances have no implication for the issue of currency manipulation," the experts said.

Regarding the current account, the European economists interpreted the Swiss current account surplus as a result of Switzerland's active investment in the rest of the world, inter alia, by an aging population which stimulates savings, and less indebted governments which facilitate investment abroad.

"This has nothing to do with currency manipulation," they argued.

With respect to foreign exchange market interventions, the experts argued that during the COVID-19 pandemic capital flows swelled into Switzerland given the Swiss Franc's status as a safe-haven currency.

The capital inflow caused the appreciation of the franc, resulting in a loss of competitiveness of Swiss exports. As the interest rate is already negative, the only solution to avoid overvaluation of the franc and the loss of trade competitiveness thereof is to purchase foreign currencies in the foreign exchange market.

The experts all considered the allegation made by the U.S. Treasury faulty, especially when the International Monetary Fund had previously concluded their review on Switzerland without hinting at currency manipulation.

"If that (currency manipulation) was indeed the SNB's (Swiss National Bank's) intentions, then it is failing in a grand way, as the value of the franc has more than doubled over the last 40 years," said the three monetary experts, without a hint of irony.

Following the publication of the report, the Swiss franc's value to the U.S. dollar was boosted to its highest since early 2015 when the SNB abandoned its currency peg to the euro, which reflects the financial market's anticipation of the Swiss franc's future appreciation as a result of the U.S. Treasury's announcement.

The SNB confirmed on Thursday in a press release that it will maintain "its expansionary monetary policy with a view to stabilising economic activity and price developments."

"The SNB's expansionary monetary policy provides favourable financing conditions, counters upward pressure on the Swiss franc, and contributes to an appropriate supply of credit and liquidity to the economy," added the central bank. Enditem

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