27th October 2020
Hugues Chevalier, Economist
With the pandemic and the economic crisis, the Swiss franc is again the victim of the safe heaven syndrome with huge inflows of capital into the Swiss financial market, which has considerably strengthened the franc at the start of the health crisis. The Swiss central Bank (SNB) had then no other option but to intervene massively on the financial markets to fight the currency appreciation and had repeatedly said that the franc would not go below 1.05 against 1 euro. Then, the SNB, which interest rates are negative for a long time, sold around 90 billion of francs during the first half of the year. And this is working since the franc is stronger only by 1% against the euro after the first six months of the year. But this policy is becoming increasingly problematic with the trade partners of Switzerland, and especially the United States. Indeed, with a balance sheet close to 1 000 billion of US dollars, the SNB has been accused by the US Treasury to manipulate its currency and could undergo sanctions. In particular, Switzerland has been accused by the US to do a ‘competitive’ devaluation, which is of course strongly denied by the SNB which states that its objective is the fight against deflation and not to gain more competitiveness for its currency. To ease these accusations, the SNB has announced it will become more transparent by publishing each quarter its operations on the markets. What remains clear is that its investments in risky assets has penalised its share price which has lost more than 10% since the start of the year. But the fight against the strong franc has no price.