In the March issue of Euromoney there is an article that examines the (mis)concept of competitive devaluations. As John Normand, head global FX strategy JPMorgan, explains: “Competitive devaluation is a term that had much more meaning in the middle to late 1990s, when many countries pegged their exchange rates. The central bank could make a deliberate decision to stop defending a certain level in order to compete more with their major trading partners. That’s a very active decision.”
It is also very sensitive. So the Swiss National Bank’s decision to intervene in FX and sell CHF yesterday after it announced a rate cut and a quantitative easing programme looks a very bold step. The SNB’s action is apparently the first intervention by a major central bank since the Bank of Japan waded into the market back in 2004. It is hard to believe that, given the sensitivity around exchange rates, the SNB acted completely unilaterally. It remains to be seen whether or not the ECB’s member central banks decide that they also want to get involved, but the odds must have shortened.