The Swiss National Bank (SNB) wins 2020! Unfortunately, the Federal Reserve’s hubris could not compete with the smug assertiveness of the Swiss. SNB chairman Thomas Jordan invoked a Ben Bernanke–like assuredness when he made his case that deflation shouldn’t happen here. This comes the day after the US Treasury named Switzerland a currency manipulator, after they met the arbitrary threshold of having a:
$20 billion-plus (CHF17.7 billion) bilateral trade surplus with the United States, foreign currency intervention exceeding 2% of Gross Domestic Product and a global current account surplus exceeding 2% of GDP.
Chairman Jordan rejected the title, reported by Reuters, by saying:
Just to be very clear. The U.S. treasury report has no impact on our monetary policy.
The SNB’s policy has led to the lowest bank rate in the world at –0.75 percent, and it remains fixated on ensuring the Swiss franc doesn’t become “too strong.” Whether it’s the threat of deflation or the fallacy that exports will suffer, it’s always uncanny to see central bankers deflect their actions back on the public. Like the Fed, which normally caveats its actions by referring to its mandate given by Congress, the SNB uses a similar tactic, as Jordan told reporters:
Our monetary policy is necessary and legitimate, in fact it’s the result of our mandate that we were given by the Swiss people and parliament to maintain price stability….It is very important that we maintain this price stability in order to avoid a deflation in Switzerland.
The coup de grace was delivered in a formal statement the same day, when the SNB declared in writing:
The SNB’s expansionary monetary policy provides favourable financing conditions, counters upward pressure on the Swiss franc, and contributes to an appropriate supply of credit and liquidity to the economy.
Apparently unaware that there is no such thing as an optimal supply of money and credit, the SNB refutes this in the most Keynesian fashion of all: declaring a truth simply by declaring it true. Similar to the comment that their monetary policy is “necessary and legitimate,” the Swiss bank claims it has found the “appropriate supply of credit and liquidity” without the slightest bit of proof, rationale, or calculation.
Additionally, they declared that:
In light of the highly valued Swiss franc, the SNB remains willing to intervene more strongly in the foreign exchange market.
If true, the SNB will increase its foreign purchases, and as with all other central banks, the race for expansionary policy with the goal of price inflation should make for an interesting 2021.
Still, the comedic element is not lost on us, considering The Economist‘s Big Mac Index shows Switzerland is still home to the most expensive Big Mac in the world, costing over $7 USD as of July 15. Yet the central bank still commits itself to weakening the franc, because, apparently, there is nothing worse than a strong currency.
So the Swiss bank wins: currency manipulation, the lowest interest rate in the world, purchases of US equities and foreign currencies with money created out of thin air, all to support the untenable position of maintaining the “appropriate” supply of credit. While the US dollar remains the world’s unofficial reserve currency, Switzerland’s publicly traded central bank does things the Fed only dreams of. Similar actions would be unfathomable if ever implemented in America. We hope.
