About 60% of Switzerland is covered with forests, lakes and mountains. Since Switzerland has no mineral resources, it must import, process and resell them as products. Switzerland exports 3 times more than it imports. 60% of the exported goods and 80% of the imported goods go to and come from the European Union (EU).
About 40% of the Swiss are employed in industries dealing with pharma, machines, metals, watches and high quality and precision products which are mostly exported. Swiss exporters suffer many disadvantages not belonging to the EU and having an expensive Swiss Franc. Their advantage is in their reputation for providing products and services that are of high quality and reliable. More than 50% of the Swiss are employed in providing services in banking, insurances and tourism. Switzerland has an unemployment rate of only a few percent. Less than 10% of the population is employed in agriculture which is strongly supported and subsidized by the government. The production of the Swiss farmers does not fulfill the needs of all people, so Switzerland must rely on imported foods.
Despite all this wealth, less than 40% of Swiss owe their own homes. This is because greedy banks have lobbied politicians to offer tax benefits to those with mortgage debts and to burden house owners who are free of mortgage debts with a high tax rate.
The central bank of Switzerland, called the SNB, the bank of all the greedy banks, fortunately seems to be wiser and less greedy.
The SNB is responsible for Swiss monetary policy and for issuing Swiss franc banknotes called CHFs. The SNB is a corporation owned by shareholders, and traded on the stock market under special regulation. About 55% of its shares are owned by public institutions like cantons and cantonal banks. The remaining shares are traded on the stock market. They are mostly owned by private individuals. SNB is mandated to ensure that there is stability in a free market which is often disrupted by greedy money speculators.
The creation of money, the Swiss example:
When businesses need more money than they have for growth, they issue stocks that represent ownership of part of the businesses. People and commercial banks invest by buying these stocks. The prices of stocks rise or fall depending on whether the businesses make a profit or a loss.
Governments work like businesses but instead of "stocks", they use "bonds". When a government needs more money than can be collected by taxes to spend on public works, it issues bonds which promise a guaranteed interest payment to the buyers – the people, businesses, commercial banks and central banks of foreign countries.
When businesses need more money than they have for growth, they issue stocks that represent ownership of part of the businesses. People and commercial banks invest by buying these stocks. The prices of stocks rise or fall depending on whether the businesses make a profit or a loss.
Governments work like businesses but instead of "stocks", they use "bonds". When a government needs more money than can be collected by taxes to spend on public works, it issues bonds which promise a guaranteed interest payment to the buyers – the people, businesses, commercial banks and central banks of foreign countries.
When the government needs even more money to fight natural disasters and wars, it sells these bonds to its own central bank as a last resort who buys them by printing the money.
The role of the central bank is to ensure that there is enough money circulating in the country to keep prices stable. Too much money means that its value is diluted and its buying power is reduced. This inflates the price of products and services making them expensive.
There are many examples of countries that due to extreme conditions such as war can find themselves in a ridiculous hyperinflation spiral where prices double every day. If a country can not finance projects vital to national survival by collecting taxes, they are forced to print money. This sudden excess of money can result in too much money chasing after too few goods. When foreign countries sense the rising inflation, manufacturers find that their raw products rapidly increase due to the rapidly cheapening of their currency. Their products become more expensive. This price increase can rapidly spiral out of control causing the price of goods to skyrocket. To keep the economy running, the government is forced to raise salaries by printing more money. This exasperates the inflation into hyperinflation which can result in the price of goods doubling every day. If this is continued, the government is forced to print money with higher and higher denominations, adding zeros until there is no more space for the zeros. Those who have saved their old bills soon find them worthless. Like children who have saved up their pennies, they are soon forced to cart them with a wheel barrow to by a loaf of bread.
Too little money has the opposite effect, causing prices to drop. Central banks regulate the circulation of money by controlling interest rates. Depending on whether the interest rates are low or high, more or less people borrow. Central banks can also protect the country's money from foreign speculators by intervening in money markets. They can support their trading partner's weak currency should it lose value due to speculation by pegging it to their own strong currency and printing as much as is needed to keep the low value.
When speculators were searching for a safe haven for their wealth, they bid up the price of CHFs causing Swiss imports to be cheaper to buy and exports to be more expensive to sell. This greatly disrupted the economy and threatened Swiss producers by making it too difficult for them to compete.
SNB came to the rescue. They pegged the strong CHF to the weak Euro to prop it up and to give tourist businesses and exporters enough time to adapt their businesses to the faltering Euro. This would give them and the Swiss commercial banks time to get rid of their accumulated Euros that were otherwise going to lose their value and ruin their businesses.
SNB printed “cheap” Swiss Francs for over 3 years to hungry speculators who wanted to trade their falling Euros with attractive Swiss Francs, in order to have a safe haven for their wealth.
If SNB would not have intervened, the market would have made the CHF very expensive making imports expensive to buy, and exports and services, cheap and easy to sell. It would make Switzerland a cheap land to visit, and like a poor country, dependent on tourism.
By guaranteeing to sell CHFs at a lower price, exchanging strong and expensive CHFs that people wanted for weak and cheap Euros that no one wanted, the SNB accumulated a vault full of Euros and protected the CHF from the whims of speculators.
When SNB felt that the European Central Bank was going to flood the market with Euros, to make their exports cheaper and their tourist industry more attractive, Switzerland had no other choice but to unpeg their Swiss Francs from the weakening Euro.
Central banks are supposed to be independent from the governments that they support. But when they are threatened by global speculators and foreign central banks who wreak havoc to their country's economy, governments should step in and protect their economies with subsidies, tariffs and duty taxes for cross-border shoppers looking for bargains at the expense of local stores.
At the present, the EU is after the CHF. Thanks to the wisdom of SNB, the CHF can be saved. In the future, the EU, if it survives, will be after Switzerland's clean water. Hopefully Switzerland will be as accommodating as SNB is by selling as many bottles of water that it takes to satisfy the thirst of the EU, at a fair fixed stable price.
THE END
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