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‘Unique situation’ led to Swiss franc move: US

Switzerland has been "disproportionately" affected by volatility on the foreign-exchange market due to the eurozone's financial crisis, a US official said Wednesday.

Asked at a Washington news briefing about Switzerland’s surprise action on Tuesday setting a cap on the Swiss franc’s rise against the euro, a Treasury official, speaking on condition of anonymity, said she could understand it.  

“Switzerland has quite unique sets of challenges. It’s situated in the middle of Europe and has been, I think, quite disproportionately affected by the financial stresses in Europe,” the official said.  

“It’s a quite unique circumstance where you see quite disorderly movements associated with its unique position,” she added.  

The Swiss National Bank surprised markets on Tuesday by placing a floor on the euro’s value against the Swiss franc, targeting it at 1.20 versus the European currency, to deal with vast rises in the value of the traditional safe-haven franc amid financial turmoil.  

The central bank vowed to do everything possible, including buying “unlimited quantities” of foreign currency, to prevent the franc from rising.  

For Washington, this decision does not change the view of the Group of Seven advanced economies on foreign exchange.  

“The G7 in the past said it will be vigilant on excessive volatility and disorderly movements in foreign exchange rates, so my anticipation is that the position with regard to support for market-based exchange rates will continue to be a central thrust of our discussions,” the official said.  

The G7 finance chiefs are set to meet on Friday in Marseille, France. The United States will be represented by Treasury Secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke.  

The G7 also includes Britain, Canada, France, Germany, Italy and Japan.

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FRANC

Switzerland STILL has priciest Big Macs in the world

Switzerland has the most overvalued currency in the world according to The Economist’s Big Mac Index 2017, which the alpine country tops once again.

Switzerland STILL has priciest Big Macs in the world
Photo: McDonald's Switzerland
Invented in 1986 as a light-hearted guide to purchasing power parity, the Big Mac Index compares the cost of a McDonald’s Big Mac burger in countries across the world. 
 
Using the US dollar as the base rate, the 2017 Index showed a Big Mac in Switzerland to cost $6.35 compared with $5.06 in the US, meaning the Swiss franc is overvalued by 25.5 percent.
 
The exchange rate that would equalize the price of a burger in the two countries is 1.28 francs to the dollar, while the actual exchange rate is 1.02 francs.
 
The franc far surpassed the second highest country, Norway, where a Big Mac cost $5.67, overvalued by 12 percent.
 
Sweden, Venezuela and Brazil were the only other countries to have pricier burgers than the States. 
 
According to this ‘burgernomics’, the euro and the pound are undervalued by 19.7 percent and 26.3 percent respectively, said The Economist. 
 
However, the situation is different in an adjusted version of the index which takes into account labour costs and GDP. 
 
When adjusting for Switzerland’s average income, the franc is only overvalued by four percent, it found.
 
Brazil topped the adjusted index, which showed the Brazilian real to be 66 percent overvalued.
 
“This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower,” said the Index authors. 
 
“The relationship between prices and GDP per person may be a better guide to the current fair value of a currency.”  
 
Switzerland has topped the raw index for several years. 
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