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I think it is mainly liquidity and counter-cyclicality that is important.
Which currencies are currently considered as safe haven?
First of all, the Japanese Yen is to certain extent safe haven, because while Japan has a very large debt problems as well, it is not acute, that means so far Japan has managed to finance its deficit domestically. Thus, it is not dependent on foreign investors. That makes Japan different from Eurozone and the US. Moreover, it is in Asia, it is not anywhere near the European debt crisis. The yield is advantage that Japan used to have has basically disappeared. Secondly, the Swiss Franc, which is limited obviously, because the SNB is in the market and protects EUR/CHF at 1.20. Furthermore, Switzerland, not being part of Eurozone nor the European Union, is attractive. For some time last year the Sterling was considered as safe haven, but that was very briefly. Another thing is Australia, which is benefiting from quite big inflow of money. However, that is just because people do not know where else to go. Australia attracts, because it has high yields and relatively robust fundamental outlook. But I am not sure whether we may call the Aussie as safe haven. Consequently, it is mainly the Japanese Yen and the Swiss Franc, which are currently considered as safe haven currencies.
What other currencies to your mind may gain status of safe haven in the future?
One may argue that the US Dollar is currently being considered as safe haven, because the US problems are not so much in the headlines. The issue is going to become acute at the end of the year, when the US will reach a debt ceiling. However, compared to the Eurozone chaos, the US looks almost quiet. Thus, I think the Dollar has certain status as safe haven currency.
As to the markets like Scandinavia and Australia--the problem there is that they are too small, and the markets are not liquid enough. The liquidity is the very big issue and key determinant of true safe haven currency, because you invest in the safe haven in the times of crisis, and it is important that this is an investment that you can get out quickly. Therefore, safe haven needs to be liquid, and that is not the case for the Scandinavian currencies or in fact for the Australian Dollar and New Zealand Dollar.
What do you think about the BRIC's initiative to curb the influence of US Dollar on the global market?
Due to the financial crisis and its consequences for the global economy, the Dollar was about to lose its stand-alone status as the world's biggest and dominant reserve currency. In fact when we look at the reserve currency data and at the allocation of the currency reserves, we can see that throughout the fourth decade of the 20 century the Dollar share of reserves was actually falling. Instead it was the Euro, which was benefiting from this development. However, that has changed now. I think the European debt crisis has ultimately given the Dollar a new life, because as I said there are few markets as big and liquid as these two. If you are an investor in Asia and you have $3 billion worth of currency reserves to invest, you have no choice but to go the US market. You have even less choice now, because the Euro is in trouble. Thus, I think this trend ‘away from US Dollar into the Euro or any other currencies' would be stopped, because of the crisis in Europe.