Switzerland has the world’s most competitive economy, according to the World Economic Forum's Global Competitive Index 2017-2018, and Switzerland didn’t arrive at the summit by devaluing the Swiss franc. Indeed, since the Bretton Woods system of pegged exchange rates collapsed in 1973 and exchange rates became “flexible,” the Swissie has been the world’s strongest currency. The chart below shows the appreciation of the franc against the greenback.
If we adjust the exchange rate for inflation differentials between Switzerland and the U.S. to determine a real exchange rate, the picture is the same. Namely, that the Swissie has appreciated against the greenback (see the chart below).
Just why does the evidence from Switzerland fly in the face of Secretary Mnuchin’s unfounded assertion? For those who study competitiveness and trade, the answer is clear. When businesses anticipate a “strong” domestic currency, they never become hooked on the phony notion that a “weak” currency will bail them out and somehow make them more competitive. No. Instead, they focus on their knitting and the quest for increasing the productivity of their businesses. Faced with the expectation of a strong currency, they know that the name of the “competitiveness game” is productivity.