2015年-CEPS欧洲政策研究中心_The_end_of_an_overlooked_European_currency_war_4页_415kb

The End of an Overlooked European Currency War Summary

Core Content

This commentary by Daniel Gros discusses the Swiss National Bank's (SNB) intervention in the foreign exchange market during the euro crisis and its implications for the euro area. The SNB's actions, initially aimed at preventing the Swiss franc from appreciating too much, eventually led to a significant appreciation when the bank ceased its interventions, highlighting the broader economic and political consequences of such policies.

Main Points

• SNB's Intervention in 2011:
  In response to the euro crisis, the SNB committed to maintaining a minimum exchange rate of 1.2 Swiss francs per euro. This was intended to prevent the franc from appreciating due to speculative capital flows. The SNB had previously attempted to counter this with interventions but failed.

• Impact of the Peg:
  The peg significantly affected the euro area's ability to adjust its current account imbalances. The Swiss current-account surplus was equivalent to nearly 0.7% of the euro area's GDP, making the SNB's intervention a major factor in the overall economic adjustment.

• Currency Manipulation:
  The SNB's accumulation of foreign-exchange reserves, particularly euros, is compared to the practice of currency manipulation. Gros argues that Switzerland's actions were more significant in terms of currency manipulation than China's, based on the size of reserves relative to GDP.

• Unsustainable Factors:
  The SNB's ability to maintain the exchange rate without intervention until 2008 was due to a combination of factors, including low interest rates and a global credit boom. These factors collapsed during the financial crisis, leading to a surge in foreign-exchange reserves as the SNB took on the risk of capital outflows.

• Political Implications:
  The SNB's losses from the appreciation of the franc were substantial, but they did not provoke significant political backlash in Switzerland. In contrast, similar losses by the Bundesbank would be highly controversial in Germany, reflecting the different political contexts and risk-taking behaviors of central banks in the euro area.

• Exchange Rate and Deflation:
  The commentary highlights that large exchange-rate changes do not necessarily lead to current-account adjustments. Furthermore, a flexible exchange rate does not guarantee the prevention of deflation, as evidenced by Switzerland's experience of near-deflation and the risk of future deflation due to the franc's appreciation.

Key Information

• SNB's Reserve Accumulation:
  By the end of 2014, the SNB's foreign-exchange reserves reached over 80% of Swiss GDP, with a significant portion in euros.

• Exchange Rate Impact:
  When the SNB stopped interventions, the Swiss franc appreciated by nearly 20% in one day, leading to a loss of 7–8% of GDP.

• Comparison with Germany:
  The SNB's role in managing foreign-exchange risk is analogous to the Bundesbank's role in managing Target balances and government contributions to European rescue funds. However, the political reception of these losses differs significantly.

• Economic Adjustments:
  The SNB's intervention made it harder for the euro area to adjust current-account imbalances. The current-account surplus in Switzerland remained unchanged despite a 25% appreciation of the franc between 2009 and 2012.

• Deflation Risk:
  Switzerland's experience shows that even with a flexible exchange rate, deflation remains a risk. The SNB's failure to prevent deflation is attributed to the appreciation of the franc and the resulting economic pressures.

Conclusion

The Swiss case illustrates the complexities and consequences of central bank interventions in foreign exchange markets. It highlights the importance of understanding the sources of capital flows and the political implications of central bank losses. The SNB's decision to stop intervening had significant effects on the euro area and underscores the need for a more nuanced approach to managing currency and economic stability in Europe.