Swiss Jolt Joins Roosevelt Devaluation in Currency-Shock Annals
(Bloomberg) — Emerging markets and developing nations are usually the ones associated with massive currency moves — one reason why Switzerland’s Thursday-morning abandonment of a cap in the franc was such a surprise.
The move places Swiss National Bank President Thomas Jordan alongside late U.S. Presidents Franklin Delano Roosevelt and Richard Nixon in the annals of industrialized-nation exchange- rate policy upheavals. Here are some of the memorable historical examples:
* Churchill, 1925:
Britain’s chancellor of the exchequer at the time, Winston Churchill took the pound back onto the Gold Standard, a fixed exchange-rate system that had been suspended during World War I. His move to revalue the currency at its prewar rate sparked a depression, according to a study published by the Federal Reserve Bank of St. Louis. Trenchant deflation forced the U.K. back off the standard by 1931.
* Roosevelt, 1933:
After winning the presidency in the midst of the Great Depression, Roosevelt suspended the convertibility of the dollar into gold, a decision that saw it tumble 11.5 percent against gold-standard currencies, and triggering a rally in stocks, according to the St. Louis Fed study.
* Wilson, 1967:
After an attempt at sustaining the pound’s exchange rate by selling dollars and gold, U.K. Prime Minister Harold Wilson devalued sterling by 14 percent the evening of Nov. 18. The next day, in a broadcast address, he assured Britons that the pound “in your pocket” was worth the same, and that the depreciation would help exports, according to a BBC synopsis.
* Nixon, 1971:
In what became known as the “Nixon shock,” the American president on Aug. 15 triggered the developed world’s transition to the modern-day floating exchange rate system. The post-World War II Bretton Woods system had set values of foreign currencies relative to the dollar, which was itself tied to gold at $35 an ounce. A run on the U.S. currency spurred Nixon to remove the convertibility to gold, a State Department history shows.
By December, authorities from the major developed nations agreed to what amounted to a 12 percent trade-weighted slide in the dollar against the currencies of other Organization for Economic Cooperation and Development members, excluding Canada, according to a National Bureau of Economic Research paper by Douglas A. Irwin. Speculative pressure against the U.S. currency continued, and by March 1973 the Bretton Woods system was effectively abandoned, the State Department review said.
* Hawke, 1983:
Australian Prime Minister Bob Hawke and Treasurer Paul Keating ended a peg of the Australian dollar to its U.S. counterpart, a float that led to depreciation that policy makers intended as a buttress for waning export competitiveness.
* Major, 1992:
Prime Minister John Major and Chancellor of the Exchequer Norman Lamont failed in their attempt to stare down investors including George Soros, who were betting the U.K. couldn’t keep the pound in what was a pre-euro system of European exchange- rate integration. On Sept. 16, later known as Black Wednesday, the government decided to let the pound float. The currency ended the year down 19 percent against the dollar.
–With assistance from Iain McDonald in Sydney.
To contact the reporter on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net Fergal O’Brien
