Currency war spells trouble for Switzerland and Japan

Eve Troeh Aug 12, 2011

Currency war spells trouble for Switzerland and Japan

Eve Troeh Aug 12, 2011

JEREMY HOBSON: All the unsettling economic news this week has investors seeking shelter — and some are finding a safe place in currencies like the Swiss Franc and Japanese Yen. But, that’s not causing smiles in Zurich and Tokyo.

As Marketplace’s Eve Troeh explains.

Eve Troeh: The Euro is supposed to be first runner-up, where investors turn when the dollar’s weak. But with Euro nations deep in debt, it’s not looking great. Eswar Prasad is an economist at Cornell University.

Eswar Prasad: So there is a desperate search by investors for some safe place to put their money.

You might think other countries would be giddy,
like if the second, or third runner-up got to step in for Miss America. But, no. Prasad says when big foreign investors flock to smaller nation’s markets:

Prasad: Those markets take a huge jump and then people get nervous about whether those are getting overvalued.

Everyone knows they’re just fill-ins while the dollar and Euro “fail to fulfill their duties.”

Right now, Switzerland and Japan are the go-tos. Switzerland, because it’s in Europe, but has its own currency. Japan, because it’s a big, independent economy and, since the tsunami, has nowhere to go but up. But as the Swiss franc and the Yen rise in value:

Brian Dolan: Their products become much less competitive and it also reduces the amount of earnings on those exports.

Brian Dolan is chief currency strategist at Forex. He says the Swiss and Japanese are uglifying their currency — cutting interest rates, loaning more money to look less safe.

Andrew Hilton at the Center for the Study of Financial Innovation says they’re also “jawboning.” That’s when bankers warn investors to stay out, or else.

Andrew Hilton: I will link the Swiss franc to the Euro. That will screw you all. Well, it’s a most unlikely threat.

Because that would hurt Switzerland as well.

I’m Eve Troeh for Marketplace.

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