The global currency war heated up yesterday when the Swiss National Bank (SNB) announced that it would “no longer tolerate a EUR/CHF exchange rate below one Swiss franc twenty” and would “enforce this minimum rate with the utmost determination” .
In his short statement the banks Chairman, Philipp Hildebrand, stated that international developments have “caused the Swiss franc to appreciate a great deal within a short period of time. This has resulted in a massive overvaluation of our national currency. Switzerland is a small and very open economy. Every second franc is earned abroad. A massive overvaluation carries the risk of a recession as well as deflationary developments. The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc.”
As the chart above shows, the SNB certainly followed through on its promise. The Swiss Franc fell 10.53% from its high on Friday to yesterday’s close and now trades at 1.2059 against the Euro.
This action puts an end to the Swiss Francs ‘safe haven’ status and the money it’s attracted will now have to find a new haven – something that may prove rather difficult since we live in a world where no country wants a strong currency. Today almost every nation is doing its best to devalue its currency in an attempt to boost exports and stimulate spending. What we are seeing therefore, is competitive devaluations in a perverse ‘race to the bottom’.
The only true safe haven in a world where no currency is backed by anything, is gold.