The chief of the Swiss central bank rejects the US currency manipulator label

Thomas Jordan, president of the Swiss National Bank (SNB), pauses at the Swiss International Finance Forum in Bern, Switzerland.

Matthew Lloyd | Getty Images

LONDON – The president of the Swiss National Bank, Thomas Jordan, has rejected a US decision to label Switzerland a “currency manipulator”.

The US Treasury on Wednesday added Switzerland to a list of countries it suspects are deliberately devaluing their currencies against the US 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 very low inflation – it is even negative at the moment – so we have to fight this deflation, and the Swiss franc is very strong, so it is valued in nominal terms. tremendously over the past 12 years, both against the euro and against the US dollar, ”he said.

The Swiss National Bank has long maintained its willingness to intervene more vigorously in the currency markets, and firmly denies manipulating the Swiss franc. The US Treasury said Switzerland’s interventions totaled 14% of GDP (gross domestic product).

To be labeled a manipulator, countries must have a bilateral trade surplus of more than $ 20 billion with the US, a foreign currency intervention of more than 2% of GDP, and a global current account surplus of more than 2% of GDP. the GDP.

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

Janet Yellen, President-elect Joe Biden’s Treasury Secretary-candidate, could review the findings when she releases her first currency report, expected in April.

Jordan said the SNB is looking forward to an “intensive and constructive dialogue” with the Biden team.

“We will try to explain Switzerland’s specific situation with regard to these criteria, and we will explain again why these criteria do not really reach the correct conclusion with regard to Switzerland, and that we can demonstrate that we are not a currency manipulator”, he added. .

Earlier on Thursday, the SNB kept its monetary policy stance unchanged, holding interest rates at a low of -0.75% and taking a cautious tone. The Bank said a second wave of Covid-19 infections would likely mean a weaker fourth quarter of 2020 and first quarter of 2021, noting that “production factors will remain underused for some time.”

‘Storm in a teacup’

David Oxley, senior European economist at Capital Economics, suggested in a note on Thursday that Switzerland could reverse its interventions in the currency markets next year.

“However, this is because we expect a rebound in risk sentiment to ease the pressure on the franc against the euro, not because of the actions of the US Treasury,” said Oxley.

“ 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 admitted 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. “

Since the incoming Biden government was expected to be less hostile in its approach to trade and international relations, Oxley suggested that this issue could turn out to be a “ storm in a teacup. ”

Chief Economist Carl Weinberg, chief economist of High Frequency Economics, on Thursday disagreed with the Treasury’s description, suggesting it could also be volatile.

“I certainly don’t understand how proclaiming the Swiss a currency manipulator advances the interests of the United States, or makes something better for anyone doing business, and of course there are no consequences for being labeled a currency manipulator either, so here’s 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 the new government would focus more on efforts to “ build friends around the world rather than build hostile relationships. ”