SNB Threw $118 Billion at FX Campaign as U.S. Alarm Bells Rang

The Swiss National Bank spent 110 billion francs ($118 billion) on interventions in 2020, evidence of heightened market activism that risks fueling more tension with the U.S.

The tally is the highest since 2012 and indicates officials purchased currency worth 9 billion francs in the fourth quarter, when the U.S. Treasury branded Switzerland a currency manipulator. Such eye-watering sums won’t escape the attention of President Joe Biden’s new administration in Washington, which doesn’t appear to be breaking with the stance of its predecessor.

SNB Threw $118 Billion at FX Campaign as U.S. Alarm Bells Rang

That raises the prospect of the standoff with Switzerland over currencies continuing. SNB President Thomas Jordan remains steadfast in his willingness to intervene, and is likely to reiterate that view after a quarterly monetary decision later this week.

“The Biden people are going to be tough and vigilant,” said Mark Sobel, a former career Treasury official now U.S. Chairman of the Official Monetary and Financial Institutions Forum. “I think they will continue the Trump administration’s approach to pushing countries to be more transparent about their foreign exchange practices and interventions.”

The change of leadership since the exit of President Donald Trump had fueled hopes of a shift in the U.S. stance, but that might not come to pass. Both Treasury Secretary Janet Yellen and her foreign affairs counterpart Antony Blinken have vowed to oppose manipulation. The 2020 Democratic Party party platform also contained a commitment.

SNB Threw $118 Billion at FX Campaign as U.S. Alarm Bells Rang

In doggedly sticking to their intervention policy, Swiss officials have pointed out that their capital market is too small for the sort of quantitative easing program that was employed by the Federal Reserve, which caused a drop in the dollar.

“Other countries have been quantitative easing to have some control over their exchange rates,” said Jane Foley, head of foreign exchange strategy at Rabobank. “Perhaps it’s a little bit rich that the U.S. Treasury is pointing their finger at Switzerland.”

The Swiss have also tried explaining that they can’t just boost fiscal expenditure instead, and that a country of just 8.5 million that is home to some of the world’s largest companies, will inevitably show an overstated current account surplus.

The International Monetary Fund and the Bank for International Settlements have both given the SNB a green light.

U.S. Criteria for Manipulators
  • A current-account surplus with the U.S. equivalent to 2% of GDP
  • A bilateral trade surplus of at least $20 billion
  • Foreign-exchange interventions amounting to at least 2% of a country’s GDP

With inflation barely above zero, Jordan and his colleagues are all but sure to repeat their willingness to use interventions at their decision at 9:30 am local time on Thursday. They will probably also keep interest rates at a record low of -0.75%.

Switzerland can take comfort from the fact that the franc has depreciated against both the dollar and the euro, lessening the need for interventions that the SNB says are essential to keep deflationary forces at bay.

Economic activity is still blighted by the pandemic, and the vaccination program is behind schedule. The SNB will also update its growth and inflation forecasts.

“Now that the franc is losing ground, the central bank will welcome the franc weakening but continue to stress it remains highly valued, that risks on forex markets persist, and therefore stands ready to intervene,” said GianLuigi Mandruzzato, an economist at EFG Bank. “Interventions will start again should the franc rise again,” with the 1.07 per euro mark likely a key threshold.

©2021 Bloomberg L.P.

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