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Economic chronicle: The National Bank and the decline of the euro –

Casually, the Swiss National Bank is accommodating a gradual decline in the euro, which fell in recent days to 1 fr. 06, that is to say at a level which, not so long ago, would have made exporters yell, and which, a few years earlier and to a few decimal places (we had even approached on one occasion of the pair), had justified the temporary introduction of a floor price.

To explain what looks like an abandonment or a manifestation of helplessness in the face of market forces, we generally invoke an inflation differential which gradually reduces the effective overvaluation of the franc, without taking into account the severe eye that Washington pays to new to Switzerland, suspected of manipulating the exchange rate of its currency.

There is, however, another way of looking at the leniency with which the SNB lets the euro slip. Let us consider the evolution of the issuing institute’s balance sheet in terms of its currency investments, and more particularly the proportions reached in their composition by the euro and the dollar. On a fairly regular basis since the financial crisis of 2007-2008, and especially for the past ten years, the share of the euro has diminished, to the point of only representing 40%, while this share had almost 70% at the time. Conversely, the dollar, which then totaled about a quarter, now exceeds a third.

“The soft defense of an acceptable price for the franc seems realistic”

In part, this development is obviously due to the loss in value of the euro, since these proportions are calculated in francs. Above all, they seem to reflect the complete reorientation of Swiss foreign trade that has taken place over the decades. In 1990, Switzerland’s main trading partners were, in descending order, Germany, France, Italy, the United States and the United Kingdom. The European Union absorbed the bulk (two-thirds) of our exports. Germany alone accounted for 22%. Thirty years later, the enlarged EU alone represents only 45%, and Germany 15%. Behind the latter, which remains our main outlet, it is now the United States and China (which, with a modest 0.5%, was only in twenty-first place in 1990) to absorb 13% respectively and soon 10% of our exports.

The progress is striking when it comes from the countries of Southeast Asia (except Hong Kong), but also and above all from India, which now exceeds Italy or France in the ranking of our main markets. However, it can reasonably be assumed that essentially the trade of these countries is negotiated and recorded in dollars rather than in euros. Moreover, the respective shares of these two currencies in the foreign exchange reserves of all central banks (60% for the dollar, 20% for the euro) clearly indicate that the pre-eminence of the greenback remains unchanged, even if a slight decline has been observed in recent years, as a result of attempts by various countries, such as China and Russia, to diversify their official assets.

The soft defense of an acceptable price for the franc therefore seems, all aspects combined, anchored in a realistic vision of things, rather than being, as is sometimes claimed, the symptom of a guilty indecision on the side of the Zurich Börsenstrasse *

* Headquarters of the 3rd department of the BNS, in charge of foreign exchange operations

Created: 24.02.2020, 16h39

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