Looking for an alternative to the Swiss franc as a safe haven currency? With the Swissie riding high and bouncing around in volatile markets, investors want other options. The US dollar, yen, pound and Euro are ruled out immediately. Latin America? Forget it. Renminbi? No, thanks.
So, Record, a London-based currency manager, has backed the Czech Republic, a small country that some foreign exchange traders will more readily associate with beer and stag parties than rock-solid investments.
And it’s taken just one remark from this modest British outfit for a country of 10m to decide – hey, this is our moment in financial history.
Hospodarske noviny, the leading Czech business newspaper, splashed the news on the top of its homepage on Thursday, saying “Brits are looking for an alternative, the koruna could be the Swiss franc in the crisis.”
The Czech crown has been viewed as “the Swissie” of the region for a while. This year, it has gained 2.4 per cent against the euro, compared with a decline of around 10 per cent in the Polish zloty. The Hungarian forint is virtually unchanged on the year but after only some very volatile swings. The franc, on the other hand, gained full 23 per cent between April, when it hit a record low, and the beginning of this month, when it traded at 1.00749, a record high.
But not everybody in Prague is so excited about the koruna’s new-found fame. Mlada Fronta newspaper says Czech economists say that if the koruna becomes more popular Czechs would enjoy cheaper shopping sprees abroad and foreign brands in Czech shops would become less expensive. But for the country’s economy, this would be rather problematic, they say.
As the Swiss has discovered long ago, a strong currency disadvantages local exporters: some 70 per cent of Czech GDP comes from export, much of it to Germany.
But that’s a challenge for Czech manufacturers not international currency investors.
Related reading:
Prague relieved as currency storms pass it by, FT
Talk mounts of euro peg to rein in Swiss franc, FT
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