Revaluing the Swiss Franc

There seems to have been rather a lot of surprise over the recent revaluation of the Swiss franc. (CHF).  It jumped about 30% at one point against the Euro but has now settled back slightly. To quote the Guardian :

” What is really baffling is that absolutely no one predicted the SNB’s sudden change of strategy.

There shouldn’t have been any surprise. It had to happen. The economics are very straightforward.

The Swiss were running a 16% of GDP trade surplus. What is the point of that? What’s the point of swapping more goods and services for fewer goods and services, year in year out?  Unless the Swiss Population, individuals and companies, are saving huge amounts even a moderate budget surplus is likely to represent quite loose fiscal policy. So there was some inflationary risk. Swiss unemployment is reportedly at about 3% which would tend to support that view.

The Swiss were in the position of shipping out useful goods and services in exchange for foreign reserves denominated in pounds, dollars and Euros which they can never spend until they decide to become net importers. In addition they had to keep their exporters happy by creating extra Swiss francs to pay them.

We will have to wait and see if the Swiss will let their currency float that freely. They will probably still manipulate it downwards to maintain an export surplus, albeit a smaller one. But, even so, they could have started to realise that imports are a net benefit and exports are a net cost to any economy. Theirs included. Maybe the Gnomes of Zurich have been reading Bill Mitchell and Warren Mosler!

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One response to “Revaluing the Swiss Franc

  1. Your logic is correct but I suspect the Swiss made their decision for other reasons. They could see the EU was going in for QE, didn’t like the idea, and wanted to decouple the Swiss franc from the Euro.

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