Due to structurally low interest rates in Japan and Switzerland, the yen and the franc often served as funding currencies, used by speculators to borrow in lower rates and invest the proceeds in higher-yielding currencies and other assets such as gold, oil, and equities. Both the yen and franc have commanded interest rates lower than those in other G10 nations mainly due to their expanding current account surplus. A surplus in the current account signifies that both countries’ exports of goods and services are greater than their imports. It also tells us that both nations are net savers— in other words, creditors of capital—rather than net investors or debtors, thereby not requiring their interest rates to be as high as the rest of the G10 economies experiencing current account deficits. Continue reading →