Economic downturn intensifies global currency conflict
The world currency crisis is rooted fundamentally in the long-term decline of American capitalism and the US dollar, the foundation of the post-war currency regime.
Amid a torrent of disastrous news for the world economy, the Swiss National Bank on Tuesday took the drastic step of setting a ceiling for the Swiss franc, a move that harkens back to to the competitive devaluations and currency wars of the 1930s.
The Swiss National Bank announced that it would adopt a minimum exchange rate of SFr1.20 to the euro, and that it is prepared to purchase foreign currency in “unlimited quantities” in order to defend the franc.
The move triggered a massive sell-off of the currency, which almost immediately lost nearly ten percent of its value against the euro.
The Swiss franc has risen 25 percent against the euro in the past two years, as the currency became a safe haven for investors amidst an intensifying debt crisis in the eurozone.
In its press release announcing the measure, the Swiss National Bank said that the “overvaluation of the Swiss franc poses an acute threat to the Swiss economy,” and that the central bank is “aiming for a substantial and sustained weakening of the Swiss franc.”
The bank will enforce the new minimum rate with “the utmost determination,” the statement added.
The Swiss economy is highly export-driven, and a continued increase in the value of the Franc would significantly increase the price of exports, hitting Swiss manufacturers’ sales to its main trading partners in the European Union. Swedish economic forecaster BAK Base on Tuesday cut its estimated growth rate for Switzerland next year to 0.8 per cent, compared to the rate of 1.9 percent estimated for this year.
The Swiss franc increased sharply during the past week in response to the exacerbation of the European debt crisis and fears of an even sharper downturn of the world economy. Since August 30, the Swiss franc has risen eight percent against the euro, offsetting all previous efforts by the country's central bank to control its appreciation.