MercoPress. South Atlantic News Agency

Trump administration designated Switzerland and Vietnam as currency manipulators; China in monitoring list

Switzerland was judged to have intervened in the currency market by more than was necessary to address financial-market volatility earlier this year

U.S. Treasury Department designated Switzerland and Vietnam as currency manipulators for the first time, while keeping China on a watch list, in the Trump administration’s final foreign-exchange policy report.

Having removed the manipulator label from China in January, the Treasury urged the world’s second-largest economy to “improve transparency” in its currency management, especially of its central bank’s relationship with state-owned banks -- which market participants say can act in the currency market with official guidance.

The manipulator designation has no specific immediate consequence, beyond any short-term market effects, but the law does require the administration to engage in talks to address the perceived exchange-rate imbalance. Penalties including exclusion from U.S. government contracts could be applied after a year unless the label were removed.

Switzerland was judged to have intervened in the currency market by more than was necessary to address financial-market volatility earlier this year. Vietnam also ran afoul for restraining currency appreciation at a time of rising trade surpluses with the U.S. But the Biden administration may make a different assessment next year.

Janet Yellen, who if confirmed will be President-elect Joe Biden’s Treasury secretary, has previously indicated a more understanding view of monetary policy decisions that have consequences for exchange rates. In 2019, she said, “It’s really difficult and treacherous to define when a country is gaming its currency to gain trade advantages.”

Switzerland responded swiftly to the Treasury, with the central bank saying in a statement moments after that it remains “willing to intervene more strongly” in the foreign exchange market to maintain price stability. The franc was little changed against the dollar in New York.

“Switzerland does not engage in any form of currency manipulation,” the Swiss National Bank said as it sought to assure markets that it would continue to fight a strong franc to combat deflationary risks. The release came a day before the SNB’s next monetary policy decision, due Thursday at 9:30 a.m. Zurich time.

The SNB turned to intervention years ago because the local bond market is too small for quantitative easing. Officials have also said that in a small, trade-reliant economy money spent on fiscal stimulus will likely just flow abroad rather than boost domestic consumption.

A senior Treasury official acknowledged that explanation, while indicating that the magnitude of Swiss intervention remains a key problem for the U.S.

The International Monetary Fund last year approved Switzerland’s policy of negative interest rates and interventions.

Thailand, Taiwan and India were added to the agency’s “monitoring list” for even closer monitoring, while Japan, Korea, Germany, Italy, Singapore and Malaysia remained, along with China.