SNB & CHF

Many claim that China manipulates its economic data. We explain why the best way not to get caught is to lower the GDP deflator, as lower inflation helps to increase real GDP. Lombard Street Research assumes that Chinese officials followed that approach. Standard Chartered economist Stephen Green has said that China’s official GDP figures were boosted by government statisticians underestimating inflation, which results in an overestimate of actual growth. And the New York Times recently...

A programme has been set up in one Swiss canton to teach unaccompanied minors practical skills. (SRF/swissinfo.ch) In the last two years, the number of children seeking asylum in Switzerland without their parents has skyrocketed. They are usually placed in public schools nearest to the asylum shelters where they live. But some are too old for the school curriculum, and are left to linger in the transit centres. To solve this problem, a school has been opened in the town of Weinfelden in...

If you’re an American over a certain age, you remember roller skating rinks (I have no idea if it caught on in other countries). This industry boomed in the 1970’s disco era. However, by the mid 1980’s, the fad was fading. Imagine running a rink company at the end of the craze. You know it is not going to survive for long. How do you operate your business? You milk it. You spend nothing on capital improvements, slash maintenance, and reduce operating expenses. There’s no return on...

Marc Meyer argues that the Swiss National Bank must build up reserves, but this does not mean “foreign exchange reserves”, but “Swiss Franc reserves”. According to the constitution these reserves are owners’ equity denominated in Swiss Franc and some gold. Thomas Jordan’s famous paper “Does the SNB need equity” tries to overturn the constitution suggesting that the constitution accepts FX investments as “reserves”. Russia builds up foreign reserves with national resources, with equity, the...

Small arms manufacturing is on the decline in Switzerland. It’s a long way from the boom days. (SRF/swissinfo.ch) Small weapon manufacturing in Switzerland is on the decline. Even though manufacturers haven’t released trade figures, the downward trend is clear. Gone are the days of the booming Swiss arms industry. One beneficiary was the Swiss company SIG, the official supplier of automatic assault rifles for the Swiss army. During the 20th century, its facilities in Neuhausen produced...

I wrote a story about poor Clarence who retired in 1979, and even poorer Larry who retired last year. I created these characters to challenge the notion of calculating a real interest rate by subtracting inflation. The idea is that the decline of a currency can be measured by the rate of price increases. This price-centric view leads to the concept of purchasing power—the amount of stuff that a dollar can buy. It’s the flip side of prices. When prices rise, purchasing power falls. Recall in...

In 1978 the SNB established for the first time a cap on the Swiss franc, to prevent the inflows of American funds into Switzerland that escaped the US stagflation but caused some “imported inflation” in Switzerland, too.  The Swiss introduced a DEM/CHF floor at 0.80 CHF on October 1, 1978, having known that the US government and the Fed were ready to fight inflation and the weak dollar. About one month later the FOMC hiked rates to 9%. Paul Volcker With the money supply (M1) targeting...

After the strong revaluation of the Swiss franc in recent years, some economists, like the ones at the Swiss National Bank (SNB), claim that the franc is overvalued. Many use misleading Purchasing Power Parity (PPP) measures like the Big Mac index, the OECD index or the PPP based on consumer prices for computing fair values. The second big mistake is to compute the Real Effective Exchange Rate (REER) with the wrong “base year”, i.e. to assume that in 1999 the CHF was correctly valued. The...

Newest Updates: Overview: Articles on the drivers of the CHF Exchange Rate: An article written in February 2012 that summarizes many of those points in an earlier version: It predicted that the euro would not rise against CHF and that the commodity currencies were overvalued and subject to correction. Will the EUR/CHF never rise over 1.22 or 1.23 again? On CHF Valuation: On money and real money: History and Background:   Technicals and data: The curator is: George Dorgan...

Acket: “Too much transparency is working against the SNB” Julius Baer Group Chief Economist Janwillem Acket argues today that by publishing weekly sight deposits, the SNB is telling the market too much. A more-mysterious SNB is a fresh option for a central bank that appears out of ideas. He also argues that using a basket of currencies, rather than the euro would allow them more flexibility. He points to Singapore as a successful example. Comment by Adam Button, Forex Live EUR/CHF...