Why is the USD a safe haven?

Beginner Questions
1

why is the USD a safe haven anybody? thx

2

Two reasons -

  1. Because the normal rules don’t apply. If you think back to the Asian economic crisis in the late 1990’s you’ll remember the way those countries were forced to allow their currencies to be devalued and swallow some really though fiscal medicine/rules. Those rules don’t apply to the USA, America as the centre of the global financial system would not actually follow the same laissez faire economic rules that they insist others who are to weak to argue obey.

  2. Central banks around the world won’t allow the US Dollar to fail because it’s not in their interests - Japan, China, Saudi etc don’t want to be left holding worthless bits of paper and countries in the far east have built their economies on exporting goods to the west (especially the USA).

So late last year when it looked like the global financial system was in trouble the big money flowed to the USA where it knew it would be protected.

3

Despite what’s happening to the US economy, US Treasuries are arguably the most liquid and “safest” asset to hold. So when people are panicking and looking for something safe and easy to get in and out of, the USD and US assets will be the optimal place to park money. As investors and traders settle down and become willing to take on more risk, they’ll move money out of US Treasuries and US assets to other products.

4

Is it true that the Swiss Franc is also considered to be a safe haven currency because it’s back by gold?

5

No. None of the world’s major currencies are backed by anything. The CHF has previously held safe-haven status because of the country’s neutrality, but at least in this current market cycle other considerations are primary and the swissy isn’t a major safe-haven play. In fact, the Swiss are trying to keep the CHF value down, at least relative to the EUR.

6

Thanks. I read here that it was backed by gold Mtbi Robo-Advisor Oops Response but it doesn’t sound right

7

Lots of reserves is not the same thing as backed-by. The Swiss are not on a gold standard. No one has been since Nixon took the US off, removing the final gold-covertible currency from the mix.

8

The Swiss Franc was backed 40% by gold until 2000.

FDF - Federal Law on Currency and Legal Tender to enter into force on 1 May 2000

9

this is a really good thread, cheers guys