Countries with stable governments and strong economies should enjoy capital inflows and strengthening currency. With Sweden, this has not been the case. This text examines and questions the situation of falling Swedish currency SEK, the Krona.
One of the reasons why Sweden would artificially impact low currency value is the central bank’s inflation target 2%. The Swedish national economy has not seen major general price increases for a long time, and if the currency drops, then foreign goods automatically rise in value, helping overall inflation target to be met. Also, a weak currency can benefit the Tourism industry to get foreign tourist inflows, and hence cause internal inflation with increasing hotel and tourist resort prices. The third beneficiary could be the Real estate market and stocks when foreign investors can acquire positions from prime locations cheaper.
Apart from Inflation also other reason could be that of export-related employment when Swedish products become relatively more affordable to buy, it helps Swedish exports companies to sell more.
Hence, strategically thinking there can be seen several advantages of having a weak currency. On the minus side, it becomes more expensive for SEK holders to travel abroad and buy foreign goods. If higher prices do not reflect in salaries, then all people who do not possess ownership in export companies or stronger currency income, became practically poorer.
Paradoxically Swedish economy has been booming recently, with decreasing unemployment rate, strong foreign direct investment not least to tech startup sector, highly-priced stock exchange, healthy companies, and competition. If the economy does so well,
why is the SEK falling then?
As the Swedish Central Bank has imposed a negative interest rate, it practically means that investors holding large currency deposits must pay to the central bank, instead of getting interested. If the interest rate is low or minus, then it does not provide value increase-but instead of value destruction. Investors seek other central banks and currencies with higher growth and interest rates instead causing a drop of demand to SEK which decreases its value.
Since there has been already long-time stress at global financial markets waiting for the next recession, this insecurity moves investors to choose the biggest currencies instead to get stability. Again, this lack of interest in SEK impacts its perceived value.
These reactions lead to most confusion reality, where falling Krona enables export growth while same time practically cutting workers’ wages, improving local companies’ relative competitiveness. If the export companies are booming and lower SEK attracts tourism, real estate, and stock investors why is not this strengthening economy lifting Krona up?
The situation has already boosted national tourism and may soon impact also local farmers’ incomes as their competitor’s foreign food prices increase. That is desperately needed as well, due to a few hot summers. It becomes paramount to hedge yourself against the fall and look at alternative investments and holiday destinations to secure your financial health. Having costs in stronger currency land, such as Euro or Dollar starts to hurt, whereas cash flow from those countries could be highly desirable. While international purchasing power of Swedes decreases, falling Swedish Krona offers variety of business opportunities to those who are willing to grasp them.