The former chief economist of UBS is rarely at a loss for a pithy statement. His recent comments on the accusation of currency manipulation will likely anger the Swiss National Bank.
Under pressure from the U.S., the ranks tend to close: when the administration of U.S. President Donald Trump branded Switzerland a currency manipulator in December 2020, the Swiss National Bank (SNB) joined forces with the government and leading economists in a show of calm and unity. What the U.S. calls currency manipulation is regarded by the Swiss monetary guardians simply as a defensive measure necessary for survival against an unjustified appreciation of the franc.
Criticism from its own camp is not really welcome under pressure from the world power. Klaus Wellershoff, who was an oft-quoted chief economist at UBS until 2009 and has since been active in Zurich with his own consulting firms, doesn't mind.
«Fuse Blown»
In an interview in today's edition of «NZZ», he says that the SNB's line of defense is not convincing from an economic point of view. While Switzerland has been running increasing current account surpluses since 2017, the central bank has been weakening the franc with targeted interventions at the same time, he says: «From an economic point of view, there's little room for interpretation here: that's also called currency manipulation in the textbook.»
The controversial economist then goes one better in the interview. Last year, the SNB had increased the monetary base by 100 billion francs to more than 700 billion, after the monetary base had still been at 40 billion in 2007: «Obviously, a fuse has blown at the SNB,» says Wellershoff. The SNB is intervening in the market in a way that does not ensure equilibrium, he said.
Departure From Interventionism?
The SNB, led by Thomas Jordan, has always stressed that intervention in the foreign exchange market is part of its monetary policy arsenal, which it will not abandon. Since interest rates are obviously not a deterrent for foreign investors seeking the safety of Switzerland for their assets, the SNB sees the franc under unjustified appreciation pressure, i.e. not proportionate to the country's economic strength. To avert damage to the national economy (exporters and tourism are equally affected by an appreciation), the SNB primarily buys dollars and euros on a large scale.
Wellershoff obviously disapproves of this view. It is therefore hardly surprising that he would like to see a «face-saving way out» of «this interventionism», not least because the negative effects of the ultra-expansive monetary policy of recent years would increase over time.
