The Doughty Swiss
Congratulations to the
doughty Swiss, we say. The decision of their central bank to remove the
cap on its currency, allowing it to soar against the Euro, is causing
the foreign exchnge markets to be struck with the dreaded turbulence. It
may well make things difficult for Switzerland in the short run. But it
was a vote of no confidence in the quantitative easing that the
European Central Bank is about to undertake. It may have put some starch
into the Germans, to whom the ECB just bowed by saying it will do its
quantitative easing without making taxpayers responsible for losses.
All other virtues of this drama aside, what a paroxysm of panic it
has produced at the Financial Times, which has declared that “Thursday’s
action in the Swiss franc defies the reach of hyperbole.” We haven’t
heard such a primal scream from the FT since Prime Minister Thatcher cut
taxes (at that juncture the Wall Street Journal consoled its competitor
with an editorial called “Cheer Up, Lads”). The FT calls the Swiss
National Bank’s move “a poor advertisement for Swiss reliability.” It
suggests the Swiss demarche is “all the more remarkable” because the
currency is “prized for its stability.”
We’re not sure “stability” is the word we’d have used for either the
Swiss franc or the euro, or, for that matter, the dollar. The latter has
lost more than 78% of its value since the start of the century (this
morning it was worth but a 1,280th of an ounce of gold). A long-term
chart of the Swiss franc shows that it (and the Euro) have kept pace
with the dollar in this decline. Gold hasn’t changed its policies once
during this period. Its quantity hasn’t changed a whole lot; it’s still
inert; and hasn’t anybody found any world-shaking new industrial uses
for the silent money. Not even the FT can blame the instability on gold.
The bitter truth is that all the sturm and drang over the Swiss franc
is a feature of the age of fiat money. The exclamations of horror that
have greeted the decision of one tiny country to stop playing the same
game as the bigger countries testify to nothing so much as the absurdity
of the fiat system. We’ve never understood the virtues of any country
running down the value of its money. We’ve long felt that one country or
another — Switzerland, Israel, Britain . . . someone — just ought to
stop issuing its currency by fiat and return to a classical system.
Wouldn’t it be something if it turns out that Switzerland has taken the
first step.
19:39
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