The absurdity of putting the Swiss franc and the dong in the same basket brings back memories of May 1, 2002. That’s when I appeared before the Senate Banking Committee, along with then‐Treasury secretary Paul O’Neill, to testify on exchange rates and the Treasury’s “Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States.” I was highly critical of both the entire concept and the particular methods used to label a country as a currency manipulator. I indicated that the U.S. Treasury’s report was little more than an invitation for political mischief that would interfere with free trade. In short, I thought, and think, that the entire semi‐annual currency‐manipulator ritual is rubbish and should be trashed. The Swissie‐dong odd couple certainly suggests that I am on to something.
Moving beyond the report, allow me to make a few remarks about the great Swissie. The inconvertible dong requires no further elaboration. During the 19th century, the Swiss franc, which was introduced in 1850, was a relatively “normal” currency, with alternating periods of strength and weakness. Since World War I, however, the franc has experienced a strong trend of nominal and real appreciation against the British pound, U.S. dollar, and major continental currencies. Indeed, in their authoritative book, Swiss Monetary History since the Early 19th Century, Ernst Baltensperger and Peter Kugler concluded that the trend rate of the real, inflation‐adjusted Swiss franc appreciation against the world’s international currency, the U.S. dollar, has been nearly one percent per year during the post‐WWI era.