They All Said a Strong Currency is Bad …
We feel absolutely certain that the people running the SNB won’t be convinced by any evidence, whether theoretical or empirical, that puts their misguided assessment of the alleged dangers of “deflation” and a strong currency into doubt. In spite of Switzerland’s reputation as a nation of that holds conservative values in high esteem and is among the economically most free in the world, its central bankers are almost by necessity strong believers in central planning and assorted Keynesian and monetarist shibboleths.
We say “almost by necessity” because admitting to the truth of the matter, namely that the institutions of fiat money and central banks are utterly alien to the market economy and are harming it more than just about any other human invention, would be tantamount to conceding that they themselves are surplus to requirements – which of course they are. Among other things, these walking and talking impediments to prosperity and economic progress continually assert that nations can somehow be made richer if only they devalue their currencies. This is typical Keynesian logic: You can get richer by becoming poorer!
Photo credit: Daniel Rohr
As is widely known, the wise sages running the SNB were ultimately forced to abandon the previously enforced minimum exchange rate against the euro in the face of the looming threat of Mario Draghi’s equally nutty QE operations. Not because they actually wanted to give up on it. They simply got cold feet upon pondering the prospect that their bloated balance sheet would have to be blown up even more.
The Swiss monetary base reflects the vast bulk of the liabilities on the SNB’s balance sheet. Even the inflationism of the Fed, BoJ and ECB is thus far dwarfed by this – click to enlarge.
The SNB, in concert with Switzerland’s export industry (in its role as a completely uninterested bystander thinking only about the welfare of the citizenry), was for a long time eagerly engaged in making apocalyptic pronouncements about what a stronger Swiss franc would do to the economy. A deflationary spiral would surely suck everything down into a kind of financial and economic black hole.
Incidentally, the SNB argued against the demands articulated in the Swiss gold referendum precisely on the basis of this very same unreflected scaremongering. Allegedly, an increase in the franc’s gold cover would have made interventions such as the imposition of the absolutely essential minimum exchange rate impossible. A little white lie there, technically speaking, but why then give up on the peg a scant ten weeks later?
EUR/CHF cross rate, before, during and after the peg. Surely Switzerland is now a poorhouse? – click to enlarge.
What Really Happened So Far
