The Norwegian krone: the new safe haven currency
This comes via the Financial Times.
The Swiss National Bank’s decision to intervene to weaken the franc has left currency investors with one less haven from the financial crisis.
Its move comes at a time when there are also questions surrounding the future haven status of two other leading currencies: the dollar and the yen.
While the dollar has enjoyed a liquidity premium amid the current financial turmoil, many investors expect it to lose its allure as the full impact of large-scale US fiscal and monetary loosening filters through.
Simon Derrick at Bank of New York Mellon says: “The dollar has clearly been supported by haven flows during the current crisis.
“But, in the longer-term, the sheer scale of US fiscal spending and the lack of international capital available to support it represents a direct threat to the dollar’s strength.”
The other main beneficiaries during the current crisis, the Swiss franc and the yen, have both lost their haven status in recent weeks.
The Swiss franc has been driven lower by the SNB, which last week intervened to sell the currency, saying its recent appreciation represented an unwelcome tightening in monetary conditions.
Meanwhile, the yen has been undermined by a series of data showing a steep downturn in Japan’s export-driven economy.
This has helped stoke expectations that the Bank of Japan will follow the SNB and intervene to weaken its currency.
So where do currency investors turn now? One answer could be Norway.
David Bloom at HSBC says “The ultimate haven currency in our view is the Norwegian krone. “It’s probably the best currency in the world.”
Given quantitative easing in the U.S., Switzerland, the U.K. and Japan, there are not many options left for holding fiat money. Other currencies that might provide protection? The Aussie dollar, the Kiwi dollar and the Loonie.
What do you think about SEK?
The Swedes are too close to the ECB policy-wise and they have no commodities. In an inflationary environment, you want a currency linked to commodities. Hence the commodity dollar plays.
kynikos,
also, with the huge Baltic exposure the Swedes will want to ease as well. This chart shows the Krona as a weak currency to boot:
https://www.exchange-rates.org/history/EUR/SEK/G/720
I cant see how one nation could allow their currency to appreciate dramatically against most others and still trade with the world.
2 ways a nations economy can adapt might be:
Very protectionist
Compete with the lowest cost producers
Money creation reduces debt burden and improves competitiveness.
Mark,
Competitive currency devaluations were a key destabilizing feature of the great depression. Call it beggar-thy-neighbour. As you stated, “Money creation reduces debt burden and improves competitiveness.” And I agree with you. But, what’s good for one country is obviously bad for others. the natural response is retaliation and protectionism.
Look at the chart of the Krona (FXS) and tell me what the market thinks of the it.