Inflationomics

The Swiss Franc Snaps–Up

 Ok, so the sound-money voters in Switzerland lost the election, but it looks like the election may have affected the Swiss National Bank (SNB) after all.  While the Swiss won’t be backing their currency with gold, they also won’t be following the European Central Bank down the “quantitative easing” road in lock step at a ratio of 1.2 francs per Euro.

In case you hadn’t heard, the SNB eliminated the peg against the euro on Thursday, January 15, 2015.  As a result, the Swiss Franc exploded upward.  One can’t help but wonder why the change of heart by the SNB, but a few possibilities come to mind:

  1. Perhaps the SNB saw the writing on the wall and realized that if they didn’t change their course, that as the Swiss franc continued to lose purchasing power, the people would keep trying to pass a referendum that would eviscerate the SNB’s power at some point in the future.
  2. Perhaps the SNB believes that the European Central Bank (ECB) is on the verge of opening the money flood gates by buying government bonds from any and all European Union members.
  3. Perhaps the SNB finally saw how silly and futile it was for the SNB to support/save the Euro from the ECB’s upcoming folly.

Whatever the reason, the sudden about-face sure did cause turmoil in the currency markets!  The franc surged as much as 41 percent versus the euro on Thursday, the biggest gain on record, and climbed more than 15 percent against all of the more than 150 currencies tracked by Bloomberg.

While I don’t believe the SNB has decided to don the straight-jacket of a gold standard, perhaps they will find some more gradual means of cheapening the franc.  The problem, of course, is that the world’s central banks are in a currency war where the winner inflates its currency the most and destroys its purchasing power the fastest.  At some point, however, some central banks may wake up to the damage they are doing and change course, as the SNB did on Thursday.  When they do, there will be much more volatility in the currency markets, making international business more difficult and long-term planning impossible for some businesses and countries.

That’s the beauty of having a stable money…no manipulation by central banks…no need for central banks.  No lies necessary to bolster a currency that isn’t backed by anything of value.  How do we get governments and their stooges out of the money business?  Even the Swiss, who are aware of the problem, can’t get their currency backed by gold.  Just imagine how difficult it would be for any other country to adopt a sound money.

Perhaps when the Swiss see how much more damage the SNB can do, they will have another referendum and get rid of the SNB altogether???  It would be the start of a new, more sane approach to money and banking.

Robert Jackson Smith

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