Safe haven currencies for Belgian investors: impacts of the 2008 crisis

The objective of this master thesis is to find the safe haven currencies for the Euro using Belgium as the home market and to analyze the impacts on them from the 2008 worldwide financial crisis. We decided to use the Ranaldo and Söderlind (2010) article as our main reference, which defines safe haven currencies and isolates them for the US dollar using the USA as the home market. For these authors, to be a safe haven, the currency has to be a hedge on average and to procure an extra shield in case of high uncertainty. We transposed the American model of safe haven currencies to the Euro after adapting the different dependent and independent variables to the European market. We analyzed the Euro exchange rates with the Swiss franc, the US dollar, the British pound and the Japanese yen, from 1999 to 2016 and demonstrated that only the Swiss franc acted like a safe haven currency during this period. The US dollar and the Japanese yen acted like a hedge on average, but did not provide an extra shield in times of turmoil, whereas the British pound does not own any safe haven currency characteristics (hedge and extra shield). In order to study the effect of 2008 worldwide financial crisis, we compared the investors’ behaviors before and after this major event. Our results show that the Swiss franc seems to lose its status of the ultimate safe haven currency. This is probably related to the floor rate of the Swiss franc imposed by its monetary authorities from 2011 to 2015. The US dollar has lost its hedge role, but gives the Euro an extra shield in case of financial or natural uncertainty. The British pound is not a safe haven currency for the Euro, probably due to its close proximity to the European market. After the 2008 crisis, the Japanese yen reinforces its role as a safe haven currency for the Euro, in spite of the accommodative monetary policy that was followed. Despite our results, it is, however, important to keep in mind that there are no absolute safe haven investments. Safe haven is, indeed, related to the type of risk taken into consideration and to the crisis period. Other factors that we did not analyze in this thesis can also affect the Euro exchange rate.