When there is a war with global ramifications and the US dollar begins to wobble, the Swiss franc typically skyrockets.
As CNBC writes, Swiss officials are now much more determined to intervene and prevent their currency from strengthening too much, even though it could trigger a serious diplomatic and trade war with Washington.
Serbs (don't) like "Swiss"
For the citizens of Serbia and the region, any news about the suddenness the jump of the franc brings back unpleasant memories. About ten years ago, at the beginning of 2015 to be exact, the news that the Swiss National Bank had suddenly abandoned the defense of the fixed exchange rate against the euro went around the world.
Therefore, the franc practically overnight strengthened by almost 30 percent, which could have led to a financial collapse for tens of thousands of bank clients who had housing loans indexed in this currency.
For the sake of comparison, the state has been subsidizing housing loans in "Swiss" since March 2007, when the franc was worth about 50 dinars or 0,62 euros, and now it is about 95 dinars, or 0,93 euros.
Installments jumped drastically, debts became higher than income and the value of the real estate itself, so states, including Serbia, "stepped in" to help the owners of housing loans, and court battles and loan conversion processes lasted for years.
By the way, the National Bank of Serbia already in 2011 canceled the approval of new loans in foreign currency except in euros, but only after the earthquake that occurred in 2015 did the state begin to systematically solve the problems of owners of housing loans in the "Swiss", which finally led to the adoption of the Law on Conversion in 2019.
The problem with Trump
The Swiss National Bank confirmed at the end of this week that it is keeping the interest rate at zero, but said that it is ready to intervene in the foreign exchange market if necessary.
When the franc rises too fast, it stifles Swiss exports because their products become too expensive for the rest of the world, while at the same time threatening price stability within the country itself. With inflation currently at a very low level, Switzerland is on the verge of falling prices, which could be disastrous for their economy and standard in the long run.
The main obstacle to the Swiss plan is the politics of the United States of America. According to CNBC, the Donald Trump administration has previously chastised Switzerland, accusing it of deliberately influencing its currency to gain an unfair advantage in trade.
Because of those accusations, Washington at one point imposed huge tariffs on Swiss goods. Although the dispute is temporarily "on ice", a new investigation by the US authorities could once again lead to the introduction of high tariffs, which puts the Swiss in an unenviable position between defending the domestic economy and avoiding penalties from America.
Pressure on the franc in times of war
Analysts of major banks believe that interventions by the Swiss authorities have probably already begun, although this is not being discussed publicly. Their reasoning is that as long as war tensions persist in the Middle East, investors will buy the franc en masse, and the Swiss National Bank will have to choose between returning to unpopular negative interest rates or selling the franc directly on the market.
They believe, however, that official Bern will still try to be as discreet as possible so as not to further provoke the White House, but the question remains as to how long they will be able to keep the exchange rate under control in such an unstable world environment, CNBC interlocutors conclude.
Source: Weekly
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