Thursday 4 August 2011

Swiss can get free ride bonus on International FX speculation

Switzerland, what a country. The safe haven par excellence and yet one which has no real reason to be so, as Izabella Kaminska noted recently.

yet the price for being a safe haven in these troubled times is a rapidly appreciating currency that threatens to bring deflation to an already slow growing Swiss economy. Their exports are dropping and even the intervention of the Swiss Central bank yesterday does not seem to have fixed perceptions.

In a time of such global instability and European Crisis, what are the Swiss to do?

Well one option is to fight the debtor countries with their own medicine. They want more Swiss francs so make them available, but not via the Banks. Instead, a reward for being Swiss, the Government should mail cheques for 5,000 CHF to every taxpayer and let them do what they like with it. After all, most will put it in a Bank and therefore it will enter the banking system, if it is spent it will ward off the internal deflationary threat.

In addition, this unsterilised monetary liquidity will warn speculators off unwarranted holding of Swiss Francs. Switzerland has monetary reserves of about 12 times the amount offered out so this should cause an 8% odd devaluation in the markets, but no doubt it will be more as Switzerland impairs its reputation for its own good.

This way, Swiss people win by getting real money to spend for free - a tax on international speculation in reality, and the Country gets its financial house in better order.


Old BE said...

Probably a neater solution than by taxing imports of cash, which people would just work around.

Jackson Rodriguez said...

Switzerland prides itself on stability, it can't jerk around with monetary policy just because its neighbours went mad with the Single Currency or start getting funny ideas like QE. Because that's why the Franc is so strong, it is really the weakness of other countries and little to do with the Swiss.

They can respond, yes but can they really manage their exchange rate given they're bordered by the likes of France, Germany and Italy, each with very unique takes on financial policy?

Anonymous said...

The solution you propose is not permitted under the Swiss constitution. Playing those sorts of games with the currency is not permitted, that is what makes the Swiss Franc so attractive - it is (almost) as good as gold at a time when other nations are printing cash like it was going out of fashion.

Anonymous said...

CU, I think you are have point QE (for that is what it is), but from a position of strength NOT from a position of weakness as the USA and UK have done, the speculators cannot complain can they?

CityUnslicker said...

Anon - shame to hear it is not permitted under the Swiss Constitution.

other anon - The Swissie is too strong though, everyone else is drunk and they are the only sober driver - why not charge a fare for the ride as the price of abstemiousness?

Gimme Da Munni said...

Something similar was mooted here at the time of the bank bailouts - ie instead of giving billions to the banks to waste again, why not not give every Brit say 1,000,000 smackers to spend how they liked. That would have refinanced the banks and boosted the economy at the same time. Rather more than 2 birds with one brick?

John Thomas said...

GDM and that would have been a lot cheaper, £60+million, touble is they managed to lose a lot more than that with more coming out of the woodwork (still).