By Chen Junxia, Xu Chi

GENEVA, Dec. 20 (Xinhua) -- "We conclude that the three criteria (used by the U.S. Treasury) are misleading and based on unfounded principles," said three European economists who strongly criticize the U.S. methodology used to calling Switzerland a "currency manipulator" in a written interview with Xinhua.

The US Treasury called Switzerland a currency manipulator last Wednesday in a semi-annual report. Interviewed by Xinhua, Stefan Gerlach, former deputy governor of the Central Bank of Ireland (2011-2015), Yvan Lengwiler, professor at the University of Basel, and Charles Wyplosz, professor emeritus at the Graduate Institute of International and Development Geneva considered the US Treasury's accusation unfounded, especially since the International Monetary Fund (IMF) previously had nothing in its review reports that suggested Switzerland was a currency manipulator.

“If this (currency manipulation) was the intention of the SNB (Swiss National Bank), then it is failing in a grand way, because the value of the franc has more than doubled in the last 40 years,” said these three experts in monetary economics, not without a certain irony.

Following the release of the US Treasury report, the value of the Swiss franc against the US dollar soared to its highest level since early 2015 when the SNB dropped the franc's peg to the euro, which reflects the financial market's anticipation of the franc's future appreciation following the United States' announcement.

The US Treasury report established the following 3 criteria to qualify a country as a currency manipulator over a 12-month period: the trade balance surplus with the United States exceeding $20 billion, the current account with the rest world in a surplus above 2% of gross domestic product (GDP), and the persistent and unilateral interventions in the foreign exchange markets for at least 6 months out of 12 with net purchases above 2% of GDP.

Contesting these 3 criteria, the three European economists gave their own arguments.

On trade imbalances, they point out that Switzerland's trade surplus with the United States is only a bilateral relationship in Switzerland's foreign trade. The Swiss economy due to its peculiarities has different trade balances with different countries, it has, for example, a trade deficit with the United Arab Emirates, an oil-exporting country, and a trade surplus with China, destination of its many exports.

With regard to the current account, economists interpret the Swiss current account surplus as the result of Switzerland's active investment in the rest of the world. According to the researchers, the Swiss current account surplus can be explained, among other things, by the aging of the population which encourages savings, and the lower government indebtedness which stimulates investment abroad.

"It has nothing to do with currency manipulation," argued these economists.

With respect to foreign exchange market interventions, the authors highlight the intent behind the Swiss foreign exchange market intervention, which they argue merits consideration. They argue that the Swiss franc is a known safe-haven currency, which explains capital flows to Switzerland during the global pandemic when capital is reallocated to reduce risk exposure. The influx of capital leads to an appreciation of the franc, causing a loss of competitiveness of Swiss exports. Since the interest rate is already negative, the only solution to avoid the overvaluation of the franc and the resulting loss of commercial competitiveness is to buy foreign currencies on the foreign exchange market.

According to experts, the real effective exchange rate of the franc is a more informative indicator than the nominal bilateral exchange rate, and shows that following the interventions on the foreign exchange markets in 2020, the franc did not not depreciated enough to give Swiss trade a price advantage.

The SNB said last Thursday in a press release that it would continue "its expansionary monetary policy in order to stabilize economic and price developments".

"The SNB's expansionary monetary policy ensures favorable financing conditions, alleviates upward pressure on the franc and contributes to an adequate supply of credit and liquidity to the economy," the central bank said.