The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters ending June 2020.

Treasury has determined that, under the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Act), both Vietnam and Switzerland are currency manipulators.

Switzerland met all three criteria under the 2015 Act over the four quarters through June 2020. Treasury has conducted enhanced analysis of Switzerland and will also commence enhanced bilateral engagement with Switzerland in accordance with the Act. The bilateral engagement will include urging the development of a plan with specific policy actions to address the underlying causes of Switzerland’s external imbalances.

The Swiss National Bank (SNB) over the years has employed a range of tools to try to offset appreciation pressure on the franc and limit any associated negative impacts on inflation and domestic growth. Over the second half of 2019 and particularly in the first six months of 2020, Switzerland conducted large- scale one-sided intervention, significantly larger than in previous periods, to resist appreciation of the franc and reduce risks of deflation, as the SNB’s policy interest rates were significantly negative.

The US Treasury notes that “the intervention was taken in the context of an extremely large current account surplus along with a growing bilateral trade surplus with the United States and contributed to stemming the appreciation of the franc on a real, trade-weighted basis”. Further franc appreciation would help facilitate gradual adjustment of Switzerland’s excessive current account surplus.

Treasury therefore assesses, based on a range of evidence and circumstances, that at least part of Switzerland’s exchange rate management over the four quarters through June 2020, and particularly its Forex intervention, was for purposes of preventing effective balance of payments adjustments. Hence, Treasury has determined under the 1988 Act that Switzerland is a currency manipulator.

In the context of forthcoming negotiations with the Swiss authorities, Treasury says it will press for the adoption of policies that will permit effective balance of payments adjustments.

According to the US Treasury, Switzerland should employ a more balanced macroeconomic policy mix.

The Treasury says:

“We urge the SNB to deploy a broader and more balanced mix of monetary policy instruments, including domestic quantitative easing. Central to this recommended recalibration of monetary policy, we continue to urge the SNB to limit foreign exchange intervention to lean against large appreciation surges and allow real appreciation in line with the long-term trend”.

Treasury welcomed the SNB’s recent step to disclose foreign exchange intervention on a quarterly basis. Increased frequency of these disclosures – such as on a monthly basis – is expected to help further improve transparency of the SNB’s actions.