Return to a self-determined monetary policy

Return to a self-determined monetary policy

The decision of the Swiss National Bank

by Reinhard Koradi, Dietlikon

Quite surprisingly, the Swiss National Bank (SNB) decided to no longer underpin the euro. For the past three years, the minimum exchange rate of the Swiss franc against the euro of 1.20 was untouchable. The day before the U-turn in the monetary policy the SNB Governing Board reaffirmed, that it was going to stick to the minimum exchange rate.

Regained self-determination on the national currency

By linking the Swiss franc to the euro, Switzerland sacrificed its monetary sovereignty. Argue as you like – renouncing the right to self-determination voluntarily and without an emergency is more than just negligent. And a real emergency probably never existed, because since the abandonment of monetary sovereignty, nothing decisive has changed in the monetary policy framework conditions for the export sector. Reversing this decision today, proves that a monetary policy mistake was made three years ago. The correction is absolutely right – but  the consequences of the introduction and the subsequent renunciation in the intervention of the euro still waits to be disclosed to the Swiss population. Referring to the independence of the SNB does not suffice in this case.

Why this somersault?

This question can only be clarified by our supreme currency guardian Thomas Jordan. His published explanation, that it makes no sense to just continue an unsustainable monetary policy, is rather poor. No one has probably ever seriously believed that the binding of the Swiss franc to the euro is likely to be sustainable. Quite the contrary, the decision confirms that the exchange rate policy and monetary policy were correctly judged as pure speculation. A risky game resulting in one loser because of the completely unequal parameters and power relations: Switzerland, respectively, the Swiss population.  When announcing the change of course at the press conference in Zurich, SNB Chief Jordan said: “It was the right moment to abolish the minimum exchange rate.”
Regarding the balance of the SNB, the enormously accumulated foreign exchange, which probably can never be reduced at the once paid prices, the time must have been right because other euro purchases would have thrown our National Bank in an extremely precarious imbalance. This “paper money” with no intrinsic value  incur  over 500 billion Swiss francs in the balance sheet. The monetary policy of the ECB (European Central Bank) and the debt policy of the relevant euro-countries built up a massive devaluation pressure on the euro, which the SNB could no longer support. In addition, the euro will remain under pressure by the latent threat of Greece’s withdrawal from the euro. So there are no signals suggesting that the decline of the euro might be reduced, if only slightly.
Of course, this raises the urgent question: Why have our currency guardians not responded sooner to the long since emerging currency collapse? Only the SNB Governing Board can dispel the doubts that this step was delayed against better knowledge because of the upcoming vote on the Gold Initiative (the demand to invest 20% in gold).

Who will pay the cost of the failed monetary policy?

An answer to this question is pending. But one thing is already clear: the book loss of the National Bank is significant. And since the assets of the National Bank actually are national wealth, the Swiss people will pay the bill. Also for savers and pensioners the turning point in the monetary policy might be painful. It is not impossible that the local economy will suffer. Whether and how many jobs are lost, is largely in the hands of companies and the Swiss consumers. Private consumption (domestic demand) in Switzerland has always been a key economic driver for the local economy. To objections that claim that this is a homeland security issue and hostile to free trade, I would oppose that the EU economy acts in exactly the same manner for their export industry by means of their low-valued euro.
However, the stronger Swiss franc has quite a few positive aspects, too. Imports will get cheaper and the purchasing power of the Swiss franc will rise. For a country like Switzerland, which has to import almost all raw materials, a silver lining might be seen on the horizon.
The “shock” could also be used to facilitate productivity in manufacturing industries, industry, farmers and businesses by rigorously reducing the exuberant administration  initiated by the authorities.

Lessons learned

The binding of the Swiss franc to the euro must be condemned as a fall from grace in the Swiss monetary policy and must not be repeated. If we properly analyse the cost of this monetary adventure and weigh it against the benefits for our export economy,  the costs are likely to be considerably higher than the value for our foreign trade. Direct investments of hundreds of billions would have benefited our economy far more than the casino policy on the currency markets.
The experience gained in recent years also reveal relentlessly dangerous defects in the negotiation strategy and negotiation tactics of Switzerland on the international stage. Wanting to be everybody’s darling  just involves the risk of being cheated. In the context of free trade agreements, Switzerland must present its legitimate political and economic interests as a negotiating partner on equal terms and have these interests become manifest in the treaties. These include protective clauses, safety standards and the ability to amend the contracts under changing conditions.
However, it seems crucial to me that politics, business and the people realize that  self-determination, that our sovereign rights never – under  whatever pretext – must be restricted nor are they negotiable. The sovereignty of our country is and will remain untouchable. Let us rely on our strength, our talents, and the political will to shape the destiny of our country in sovereignty and freedom. This is vital if we want to make use of the chance to shape our future as a free and independent country which is focused on the common good. The sovereignty of Switzerland, the self-determination – which  can be claimed by every state – may not continue to be sacrificed for alleged economic benefits. This is also true for the upcoming negotiations in the bilateral relations between Switzerland and the EU. If Federal Councillor
Schneider-Ammann reacts to the new monetary policy of the SNB with the demand: “Now is the time to consolidate the bilateral treaties”, some constraint is needed for the Swiss negotiating delegation. Yes – but  without sacrificing our sovereign rights and sovereignty. We will not give up our freedom. Switzerland is, like all other states, to be respected as a sovereign state and therefore should be dealt with accordingly.
Personal responsibility is also part of freedom and solidarity is part of sovereignty. Especially with regard to the current monetary situation it is tempting to generate individual profits. But why not identify  in solidarity with the workplace Switzerland and the domestic workers? If the decision of the National Bank has triggered a shock, it would be a mature decision to move closer together instead of rush and panic (see Stock Exchange). Honour indigenous creativity and buy Swiss products – simply  because it makes sense to appreciate and consume that which is close to us (local products), instead of seeking far afield.    •

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