The SNB is not a currency manipulator — UPDATE

Over several years, Switzerland has been included in the US Treasury’s watch list of countries that could be trying to achieve unfair competitive advantage through currency interventions. In December 2021, it has formally identified Switzerland as a currency manipulator.

The Treasury uses three criteria, but these criteria are arbitrary and are not sensible. The SNB has intervened in the foreign exchange market purely for defensive reasons, to combat sharp and speculative appreciations that are caused by capital flight into Switzerland. The intention was never to create an unfair competitive advantage for Swiss exporters, and in fact, the Swiss currency has been steadily appreciating despite the interventions.

The SNB can do better, though. Given the current situation, the interventions are necessary, but as the Treasury’s decision demonstrate, they are not without risk for the Swiss economy. The SNB should periodically explain its reasoning for interventions in some detail in order to preemptively counteract possible misunderstandings.