IMD International

Is a currency war threatening Switzerland?

IMD Professor Reacts: Arturo Bris on the whether an international currency war is being waged

February 9, 2015

Arturo Bris, Professor of Finance, discusses whether we are witnessing the beginning of a currency war in a recent interview.

What is a currency war and is there one being waged between Switzerland and Europe?

Arturo Bris: If we were in the midst of a currency war, Switzerland would be printing money on a massive scale at the same time the EU is doing so with its current quantitative easing program. This would result in very high inflation for Switzerland. It would make products and services in Switzerland even more expensive than they already are and cause a recession in the country. In addition, one of the mandates of the Swiss National Bank is to combat inflation, so actively participating in a currency war would be contrary to its purpose. There is no currency war between Switzerland and Europe but the Swiss franc is caught in the middle of a real currency war between the US and the Eurozone.

What are the implications of the US/Eurozone currency war?

AB: The US is currently satisfied with a strong dollar because it allows the country to keep oil prices low (which gives the US a geopolitical advantage vis-à-vis Russia and Saudi Arabia) and makes imports of raw materials cheap. For the Eurozone, a cheap euro is great for exporting countries, such as Germany, and it will allow Southern European economies to improve domestic demand. On the other hand, an expensive euro, as it was until recently, is not sustainable in the long run if it requires higher interest rates and a loss of competitiveness. Similarly, a potential recovery of Europe will put pressure on interest rates and hence on the dollar to euro rate. Switzerland is caught in the middle because it prefers an expensive euro (to be more competitive with respect to its major trading partner) and a cheaper dollar (Switzerland is an oil importer).

What can Switzerland do?

AB: Any monetary intervention by the Swiss National Bank is currently not foreseeable in my opinion since the SNB has clearly lost its credibility by abandoning its currency's peg to the euro. And, given the size of the economy, Switzerland is not in a position to start a currency war with the US. The Swiss franc is not yet a "big currency" in world markets, especially compared to the dollar, euro, yen, and renminbi. Therefore the chances of the Swiss franc destabilizing currency markets are slim.

If Switzerland cannot do anything, what lies ahead for the country?

AB: We will certainly see a slowdown of the Swiss economy this year. I think for the most part companies will resort to cost-cutting and trying to become more efficient rather than shedding staff. Switzerland has proven to be an innovative country and should weather the storm in the long run. If Europe recovers, or if Armageddon happens and the EU starts breaking up, Switzerland will benefit.


Arturo Bris is Professor of Finance at IMD and directs the IMD World Competitiveness Center. He will be giving a keynote speech at IMD's Orchestrating Winning Performance (OWP) which takes place from 21-26 June 2015.



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