Safe-haven currency is also called hedging currency, which means that it is not susceptible to politics, wars, market fluctuations and other factors, and avoids the above risks to the greatest extent. A relatively stable currency that is not easy to depreciate.

The safe-haven currency avoids the risk of depreciation to the greatest extent, which does not mean that it will never depreciate. The market price of any currency will fluctuate.

What are the safe-haven currencies?

The recognized traditional safe-haven currency is the Swiss franc. Sometimes, other currencies, such as the US dollar, also often act as safe-haven currencies, and I will introduce them one by one below.

Safe haven currency: Japanese yen

The safe-haven nature of the yen is mainly supported by Japan’s huge current account surplus; Japan is the world’s largest creditor country. In addition, the widely popular yen carry trade also enhances the yen’s hedging characteristics: when the market is stable, investors borrow large amounts of yen (because the yen interest rate remains low for a long time), and then buy high-interest countries (currency ) Assets; but when the overall market is turbulent, these speculators will have to sell high-yield assets and repay Japanese yen liabilities, thereby pushing up the yen exchange rate.

Examples of the Yen’s sharp appreciation in recent years due to risk aversion include the panic caused by the near bankruptcy of a long-term capital management company in 1998, and the Yen’s appreciation almost entirely before and after the financial crisis in 2008. In 2015-2016 by the Brexit Referendum The resulting sharp rise against the pound.

Since the U.S. dollar and the Japanese yen are considered safe-haven currencies, sometimes the dollar/yen volatility is not large, but the volatility of currency pairs such as the pound/yen, Australian dollar/yen, and New Zealand dollar/yen are quite similar. Big.

Safe haven currency: U.S. dollar

The safe-haven nature of the U.S. dollar is supported by the credibility of U.S. Treasuries. Since the financial crisis, when encountering market turmoil, the usual practice of investors is to pour into U.S. Treasuries and U.S. dollars.
Safe haven currency: U.S. dollar

However, market trends in recent years have shown that the yen and the euro have stronger hedging properties than the dollar in some cases. Some analysts say that during difficult economic times, there is little evidence that the market’s purchases of dollars are significantly higher than other safe-haven currencies.

Safe haven currency: Euro

Like the U.S. dollar, the market is also divided on the safe-haven nature of the euro. In recent years, the euro has indeed shown some characteristics of a safe-haven currency. Low interest rates in major European economies have also aroused expectations that the euro will act as a safe-haven currency.

However, as the US stock market plummeted in early 2018, market funds did not flood into the euro as expected. The yen was in line with expectations and was sought after by the market at the time.

Safe haven currency: Swiss franc

The Swiss franc’s hedging properties are mainly due to the stability of the Swiss government and the strong financial system of the country. Low interest rates and a high degree of trust in the Swiss National Bank are also reasons for the Swiss franc’s hedging properties.

The highest performance of the Swiss franc’s hedging properties was in 2011. At that time, concerns about the debt problems of the United States and the Eurozone caused the Swiss franc to appreciate sharply against the US dollar and the euro: the US dollar/Swiss franc remained at around 0.9400 at the beginning of 2011, but that year 7 The month has fallen sharply to 0.7900; at the same time, the EUR/CHF has fallen sharply to parity from 1.3000 at the beginning of the year.

Like the yen, arbitrage traders also like to obtain interest-free/low-interest funds from the Swiss franc, and then return related loans when the market is turbulent.

Safe haven currency: RMB

The renminbi formally joined the SDR in October 2016, and the renminbi’s share in central banks’ foreign exchange reserves will increase, and claims that the renminbi will become a safe-haven currency have emerged from time to time. The renminbi has performed better than other major currencies of its kind. However, whenever market volatility rises thereafter, the relative value of the renminbi has declined compared with traditional safe-haven currencies. The results of the report do not support that the renminbi can become a safe-haven currency. So the renminbi still has a long way to go before it can be regarded as a safe asset.
Official foreign exchange reserves (Euro red, Canadian dollar light blue, Japanese yen purple, British pound green, U.S. dollar dark blue)

Who is the best safe-haven currency?

The USD/JPY may even rebound during the safe-haven period, which is contrary to market perception. Japanese investors actually purchased foreign assets during periods of risk and uncertainty, instead of repatriating them. The Swiss franc should still be a safe-haven currency, but its appreciation potential is limited by the Swiss National Bank’s foreign exchange intervention.

In the G10, buying the US dollar against the Australian dollar is the strongest hedging method. During the safe-haven period, the yen should strengthen against the Australian dollar, New Zealand dollar, Norwegian Krone or the British pound, but the yen should remain stable or even weaker against the dollar because the dollar becomes a better hedging tool.
Relatively speaking: the yen is the safest among the safe-haven currencies

What are the characteristics of safe-haven currencies?

  • Appreciation when risk assets are weak.
  • As a financing currency, it is used for foreign exchange arbitrage transactions and international corporate borrowing, so the yield is usually low.
  • It is regarded as a safe haven, so it is bought by speculators as a hedge or bought in times of stress.
  • The country often has a large amount of net international investment, which may be repatriated to the country under pressure.

There is no need for a current account surplus-the United States is a deficit country, and the US dollar, as a financing currency, is a safe haven.

Relatively speaking: the Japanese yen is the safest among the ‘safe-haven currencies’, and the Swiss franc and the U.S. dollar compete for runner-up