Who Wins in a Global FX War?

March 12, 2009

In my Daily Currency focus for FX360, I talk about whether Switzerland’s actions could trigger a Global FX War. The ultimate winner of any FX war is gold because if other central banks weaken their currency, then the only asset that isn’t facing selling by central banks is gold. Also Quantitative Easing will force central banks around the world to print money and gold is one of the few currencies that cannot be printed.

Here is a snippet from my story on the possibility of a Global FX War:

Is a Global FX War Possible?

In an environment of slowing growth and falling prices, every central bank wants a weak currency. However up until now, most major central banks have been reluctant to intervene in the foreign exchange market to artificially weaken their currencies because of the burden it would put on other countries.

Japan is a perfect example – the Japanese Yen has been skyrocketing but the BoJ did not sell Yen because they know that it would be counterproductive to the U.S. and Eurozone’s efforts to boost their own economy. In order for the Japanese economy to recover, their trade partners need to recover first.

However, today Switzerland has broken that unspoken truce of letting the market determine who gets to benefit from a weaker currency and who doesn’t. By becoming a massive seller of Swiss Francs, they are in effect artificially driving other currencies higher. This means that they are putting their own interests ahead of everyone else’s and unfortunately that may trigger retaliation by other central banks. A global FX war where central banks around world start (continue reading on FX360)

Posted in Swiss Franc, forex blog, quantitative easing, swiss national bank