Understanding More About Devaluation
One story that hit the headlines not long before it was time to write our usual monthly articles concerned Switzerland. Now the Swiss have what is generally thought of as a strong currency – but in these present times it seems as if this strength has actually scuppered them.
If someone had said to you even a week ago that the Swiss franc would be devalued, you probably wouldn’t have believed them. But that is exactly what has just happened. And what’s more, the reason for it is directly attributable to the current financial crisis we find ourselves in.
The Radio Free Europe website reported this story on Friday 13th March – definitely unlucky for some in this case. You can read more about the events of the day at this URL. We have seen devaluations before; the most recent example of devaluation was in Zimbabwe. This particular country has made devaluating its currency something of a regular event; if you look up the topic on Google you will find news stories relating to the devaluation of the Zimbabwe dollar dating back to 2007. And given the current situation it isn’t likely to stop anytime soon either.
But what of the Swiss franc? Surely the same situation does not apply here? Can we really be seeing the Swiss franc in the same boat as the Zimbabwe dollar?
There are differences, and the most essential one is that the Zimbabwe dollar is often touted as being next to worthless. It has been battered by a soaring rate of inflation – and that is not the case when it comes to the Swiss franc.
In the case of the Zimbabwe dollar, the currency is certainly not a strong one. The Swiss franc on the other hand is an exceptionally strong currency. It is this very factor that has prompted the devaluation, because the strength of the currency in this case is not doing the country any good at all.
The resulting devaluation was seen as the Swiss franc went up against several other major currencies throughout the last few days. On the 11th March the US dollar was bagging 1.1553 Swiss francs per dollar. Just twenty four hours later that had gone up to 1.1911. The Euro saw a similar change in figures. It claimed 1.4772 Swiss francs per Euro on the 11th, and the following day that had gone up to 1.5225. The day after that (the 13th) the figure had risen a little more to 1.5360.
Even the troubled British pound made good headway against the now devalued Swiss currency. On the 11th March the pound bagged 1.5961 Swiss francs, and at the end of the following day that had duly risen to 1.6356. The pound enjoyed another leap forward on the 13th too though, as it claimed 1.6659 Swiss francs to close out the week.
The Swiss government doesn’t seem to be seeing this devaluation as huge news. The currency has been getting stronger for quite some time against the other major currencies, and that is what has prompted this change in the exchange rates. They see it as a leveling of the playing field.
But what will all the other countries make of this event? After all, the Swiss franc isn’t a tiny insignificant currency that not many people have heard of. It is one of the major currencies that we have in the world. Could this be the first devaluation we see among the main players over the next few months perhaps?
Only time will tell. Obviously devaluation isn’t something that is undertaken lightly. Many different factors have to be taken into consideration before something like this happens. So it could be that this is the first and the last major currency to do this.
But the weeks and months to come will be interesting as far as these events are concerned. Could the Swiss franc regain its strength and soar up against other currencies again, for example? If it did, would that make this current event worthless?
We shall have to wait and see. But until then, there is no doubt that the world of currencies is changing like we have never seen it before.
