Within the past week Donald Trump has accused Switzerland and Vietnam of manipulating their currencies in order to keep them from increasing too much against the Dollar. This news has gone relatively under the radar, as Bitcoin records lead the headlines. According to BBC, the U.S believe Vietnam were “gaining unfair competitive advantage in international trade”. Vietnam did not comment on the allegations made, that they had intervened to prevent a rise of the Dong during a period where trade with the U.S had increased.
This article will focus on the other victim of Donald Trump’s accusations- Switzerland, who Trump claims, like Vietnam, intervened in order to correct their Balance of Payments.
Why is the U.S making these accusations?
Claims were made that Switzerland intervened to ‘offset a spike in demand for the Swiss franc’ after their trade surplus increased with the U.S, and that they should have used “a more balanced” approach. Switzerland did comment on the attack, however denying the allegations made. They said, “Foreign exchange market interventions are necessary in Switzerland’s monetary policy to ensure appropriate monetary conditions and therefore price stability,” The same BBC extract states that the U.S has been monitoring ten other countries including economic powerhouses China and Germany.
As the most traded currency in the world and a currency of such high influence, the Dollar is constantly monitored. The relationship between various currencies and the Dollar is studied, to make sure that there is no intervention that heavily affects the U.S, such as this accusation against Switzerland.
Since the first COVID-19 pandemic in March, the Swiss Franc has been constantly appreciating against the Dollar, making Swiss exports less competitive. The U.S Treasury claims Switzerland have tried to manipulate this to stop the upwards trajectory and help their exports. A report by ‘Exchangerates.org’ states that Trump’s label ‘caused the Swiss Franc to jump higher as the US may try to limit the extent the SNB weakens its currency.’ Currently, against the Dollar the franc is at its highest since 2015.
What does this mean for Switzerland?
The label will not provide any punishment for Switzerland directly, although ‘U.S. law requires Washington to demand negotiations with designated countries’, according to MSN. Win Thin, global head of Currency Strategy at BBH mentioned to MSN that, “the subtle implication of being put on this list is that you eventually could come under sanctions, and that puts pressure on these countries not to weaken their currencies so much.’
Currently, the U.S has implemented sanctions on 30 countries, including Russia. Fyggex has written about various currencies affected by U.S sanctions, examples being the Iranian Rial and the Turkish Lira. To read these articles visit the links below.
It seems unlikely for now that sanctions will be put in place against Switzerland, however this is definitely a situation to keep a close eye on as Donald Trump’s Presidency ends its course.
— Fyggex (@fyggexchange) August 12, 2020
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