American ExpressAmerican ExpressAmerican ExpressAmerican ExpressAmerican Express
United StatesChange Country

The Odd Case of Safe Haven Currencies in the Great Recession

By Megan Doyle

When crises hit, Investors rush to safe haven currencies and related assets to limit their losses. The Great Recession was certainly no exception. From gold to the U.S. dollar to the Japanese yen, safe havens were greatly sought – and greatly affected – by investors reacting to the global financial crisis.

What is a Safe Haven Currency?


Safe havens are currencies and investments that are expected to either retain or increase in value when the market is under stress; therefore safe havens are sought by investors to mitigate financial risk when economic turbulence hits. Three major safe haven currencies (and their related safe haven investments) are the U.S. dollar and U.S. Treasuries; the Japanese yen and Japan's government bonds; and the Swiss franc and Swiss government bonds. Separately, gold is also considered a safe haven asset.1 Experts define these as safe havens due to their strong liquidity and historical reliability as a store of value, which for government bonds and currencies is due, in part, to their foundation in highly regarded legal systems.2


Even though the same handful of core assets are widely recognized as safe havens, they don't always behave the same in every crisis. Safe haven status changes over time depending on the specific circumstances and events. For example, historically, when a country with a safe haven currency experienced turbulence its currency would depreciate against other safe havens as investors sought other ways of mitigating risk.


But when financial shocks hit the U.S. at the onset of the global financial crisis in 2008, the dollar's value unexpectedly soared against other currencies, surprising economists and demonstrating how hard it is to predict the behavior of safe haven currencies, after all.3,4


Safe Havens Behaving Oddly During the Global Financial Crisis


In the past, shocks to the U.S. economy would weaken the dollar, as economic theory expects. So, when the Great Recession began, economists expected the dollar to depreciate to help re-balance the global economy.5 But while the global financial crisis did lead to high flight to all other recognized safe havens, the dollar soared even higher than the rest, partly due to the attractiveness of U.S. Treasury bonds (because they are regarded as the world's premier safe) and the unanticipated reversal of carry trades.6


Gold, however, did behave as expected. Experts note that gold prices "act as an indicator to the health of the economy" because when there's high risk, investors turn to gold to protect capital.7 When the economy recovers, gold loses its appeal. The global financial crisis demonstrated this: the producer price index (PPI) of gold increased by nearly 25 percent between 2008 and 2010.8 Then, as expected, the price of gold fell after the crisis began to subside – 22 percent by 2012.9


When Lehman Brothers collapsed in September of 2008, investors turned away from riskier corporate bonds and fled to U.S. government-backed Treasury bonds. They did so for safety, despite the fact that high demand for Treasuries caused their yield to decline sharply, resulting in near zero rates of return.10 Meanwhile, this major inflow of capital into Treasuries hiked up demand for the dollar, raising the USD exchange rate even more.


The Japanese yen, another critical safe haven, was the only Asian currency to appreciate during the Great Recession, impacting the global economy and altering the balance of power in global FX markets.11 According to CNN reports at the time of the crisis, because Japan is a major exporter of goods, a strong yen can "wreak havoc on world markets" and further affect economic and financial stability for the entire global economy.12


The Swiss franc also appreciated during the global financial crisis, but its effects on international markets were minimal in comparison to the dollar, gold, treasuries, and the yen.13


A Rising, Hard-to-Find Dollar Crimps Global Business


With flight to U.S. Treasuries and the dollar during the financial crisis, the global economy saw a USD shortage that made it "operationally hard to borrow" dollars, causing a dramatic decline in international trade.14 As such, it was difficult to get dollar financing for trade with any except safe haven countries because banks, at the time, refused to lend-cross border due to high risk. Consequently, many financial flows were directed back into the U.S.15


The rising dollar hurt U.S. exporters but helped importers. Similarly, the yen's strength negatively impacted Japanese manufacturers and exporters. But reduced consumer spending in the U.S. meant import demand was low, particularly hurting Japanese export businesses. U.S. imports from Japan fell by 40 percent in early 2009.16


The World Trade Organizations estimates that global trade volume fell by around 12 percent17 during the Great Recession, and the ratio of global trade to GDP declined by nearly 30 percent.18


Safe Havens' Future: Rising Unpredictability


The way safe haven currencies and assets, especially the dollar, reacted to the events of the Great Recession led to a fundamental shift in the way experts view the global economy. Economists now understand that safe havens don't always follow historical patterns, are affected by specific circumstances, and can move in unexpected ways.


According to a late 2017 Financial Times article, experts now believe that making assumptions about safe haven currencies and assets is an act "fraught with risk."19 For example, during "risk-off" periods – the term economists use when markets exhibit a flight to less risky assets such as bonds – from 2007 to 2016, the dollar was the second-most consistent safe haven. But the dollar hasn't acted like a safe haven currency for the last three years, and has shown "a tendency to fall rather than rise at times of risk-off market behavior."20 In other words, experts suggest trying to predict safe haven currency behavior may introduce risk in and of itself.


To further show the unpredictability of safe havens, the Wall Street Journal reported in March 2018 that the dollar and yen strengthened in tandem with growing market stress as expected, but gold, treasuries, and the Swiss franc depreciated, "confounding analysts and investors."21



While most safe haven assets behaved as expected during the global financial crisis, the dollar unexpectedly rose. Between the strength of the dollar and the yen – two currencies from two crucial players in the global import-export economy – international business slowed to a halt. While safe havens can help investors mitigate risk in times of economic stress, serious market crises like the Great Recession show that flight to safe havens may produce surprising – even confounding – macroeconomic effects.

Megan Doyle - The Author

The Author

Megan Doyle

Megan Doyle is a business technology writer and researcher based in Wantagh, NY, whose work focuses primarily on financial services technology.


1. “Store of Value,” Investopedia;
2. “Haven currencies are not always a safe bet,” Financial Times;
3. What Explains Global Exchange Rate Movements During the Financial Crisis?, European Central Bank;
4. “Haven currencies are not always a safe bet,” Financial Times;
5. What Explains Global Exchange Rate Movements During the Financial Crisis?, European Central Bank;
6. Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging, Bank for International Settlements;
7. “Great Recession and Gold,” Sunshine Profits;
8. “Gold prices during and after the Great Recession,” U.S. Bureau of Labor Statistics;
9. Ibid.
10. “Flight to Safety and U.S. Treasury Securities,” Federal Reserve Bank of St. Louis;
11. “Global Financial Crisis and Asian Currencies,” VOX EU;
12. “Strong yen is everybody’s problem,” CNN Money;
13. “Is The Swiss Franc A Safe Haven?,” Investopedia;
14. Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging, Bank for International Settlements;
15. Ibid.
16. “Why was Japan’s trade hit so much harder?,” VOX EU;
17. “The great recession and international trade,” Policy Options Politics;
18. “Trade and the Global Recession,” National Bank of Belgium;
19. “Haven currencies are not always a safe bet,” Financial Times;
20. Ibid.
21. “Safe Haven Assets are Moving Strangely: Why That Should Worry Investors,” The Wall Street Journal;

Related Articles

Existing FX International Payments customers log in here