LEX Drop the currency. That has been one of the outcomes of this crisis as economies have got in trouble. It has happened in the UK, central Europe, Australia and South Korea. This week, however, Switzerland became the first country to engineer its own devaluation. It raises the prospect that others might follow.
Switzerland’s stated reason for pushing down the franc was to fight deflation and boost the economy, forecast to shrink 3 per cent this year. Domestic demand is depressed. The global price of traded goods is falling. Devaluing the franc will boost Swiss competitiveness and fight these deflationary trends. That is why economies that cannot devalue, such as Ireland and Spain, are being pummelled. It is the cost of being wedded to a fixed exchange rate.
