Currency manipulation versus exchange rate manipulation

The SNB maintains its own monetary policy

The main goal of the Swiss National Bank (SNB) is to ensure price stability in Switzerland. Because interest rates are low – or even negative in some cases – SNB President Thomas Jordan says that it is important to maintain an expansive monetary policy. Foreign currencies play an important role in this context.

The SNB once again had to intervene on the exchange rate market on a number of occasions in 2020. As a result of the coronavirus pandemic in particular, in the first half of the year investors increasingly turned to the Swiss franc, which is viewed as a safe haven and which would have soared without interventions by the SNB of around CHF 90 billion.

The US Treasury report on manipulation

It was these interventions by the SNB, among other things, that led Switzerland to be classified as a currency manipulator in a detailed report published by the US in December 2020. The US uses the following three criteria to determine whether a country engages in currency manipulation:

  1. A country has a trade surplus with the US of at least USD 20 billion,
  2. It has a current account surplus of at least two percent, and
  3. The country’s central bank intervenes in the foreign exchange market in at least six months during the reporting period with more than two percent of the country’s GDP in order to influence the value of its own currency.

According to the US Treasury, Switzerland ‘met’ all three criteria for the reporting period from mid-2019 to mid-2020.

Status quo

Despite the US’s classification of Switzerland as a currency manipulator, Thomas Jordan sees no reason to change the SNB’s monetary policy, nor does he does fear that the US will impose sanctions. While Switzerland meets all three criteria, he believes that applying the criteria to Switzerland is inappropriate and therefore provides false results, and cannot be used to determine that Switzerland is a currency manipulator. This must now be explained clearly to the US, says Thomas Jordan. Whether there will nevertheless be sanctions, in the form of tariffs on exports to the US, for instance, will also depend in part on the relationship with the new US administration.

Special features of foreign exchange trading

The foreign exchange market has the greatest liquidity of any market in the world. It takes place from 10:00 pm on Sunday to 1:00 pm on Friday, usually in ‘over-the-counter’ interbank trading via electronic platforms. That means it is open five days a week, 24 hours a day; central banks and related organisations can process transactions at the weekend as well. At the end of last year, the average global daily volume of foreign exchange trading was more than USD 6 trillion, four times the volume of the stock markets. A large share of this volume (about 80%) involves transactions in major currency pairs, which includes the USD/CHF currency pair.

So while the massive interventions by the SNB cannot be viewed as currency manipulations per se, the question is whether exchange rates can be manipulated with large foreign exchange transactions. With the exception of central banks, however, influencing or even manipulating foreign exchange rates seems impossible, based on the volumes traded each day on the foreign exchange market.

Commercial banks trade enormous sums on the foreign exchange market every day as well, both on their own accounts and on behalf of others. When trading on their own accounts, they act in accordance with their defined strategy and are exposed to market fluctuations. When they trade for others, commercial banks act under the orders and instructions of their clients. Here, in particular, there is scope for banks to engage in exchange rate manipulations – to the detriment of their clients.

Foreign exchange market regulation in Switzerland

In Switzerland, the foreign exchange market is only marginally regulated compared with the securities market. For example, the securities market is regulated by the Financial Market Infrastructure Act (FinMIA) and FINMA Circular 2013/08 ‘Market conduct rules’, but there is no explicit law in Switzerland that regulates foreign exchange trading. The regulations focus on monitoring foreign exchange participants. In Switzerland, foreign exchange traders are monitored by FINMA and, since 2008, have to be in possession of a banking licence.


Several years ago, FINMA completed enforcement proceedings based on the suspicion of anti-competitive behaviour in foreign exchange trading, issuing a fine and several occupational bans. The lawfulness of the occupational bans and the applicability of the provision regarding proper business conduct to foreign exchange traders without a management or board function was disputed, with partial success.

The question is whether the supervisory rules for securities traders should also be applied to foreign exchange traders. On the one hand, this is because foreign exchange traders must have a banking licence and therefore are subject to prudential supervision by FINMA. On the other, there is also substantial scope for foreign exchange traders to engage in improper conduct.


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