There will be acres of print in the media on the consequences of the Swiss decision to yesterday float the franc - after which its value skyrocketed.
I have but one observation to make. The franc is dramatically over-valued (as the Swiss Central Bank would agree) for one simple reason, and that is because hot money (mainly from Russia) is seeking refuge in Switzerland's tax haven banks. There is no other explanation.
This though is the perfect example of the finance curse: that is the enormous harm done to an economy and the people of a country when financiers are too dominant and their offshore activities come to swamp the realities of real economic activity. This has long been a theme of the Tax Justice Network, and appropriately so. I strongly recommend you follow that link and have a read of what they have to say about it.
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Surely you mean it was hot money from the eurozone, not from Russia? The Swiss franc peg was put in place in September 2011, when Greek government bonds were yielding over 20% and everyone was panicking about Grexit. Russia was quite stable (as evidenced by the USD/RUB exchange rate) until the start of 2014 when Putin began sabre-rattling in Crimea.
No: Russia is the explicit cause of this issue. Those inflate the franc
Euro QE has created the tipping point by deflating the Euro
Respectfully, other than what you have read in the Guardian, you have absolutely not one iota of proof that Russia is the explicit cause of the country’s decision to come off the peg.
Movements in the value of currencies are a complex system with an enormous number of inputs, many nothing at all to do with the country itself, and to try and ascribe a single factor as responsible shows a very naive and limited understanding of the way financial markets work.
Yen / Ruble / Euro weakness, Dollar profit taking, Euro QE, the price of oil, corporate balance sheet flows, currency speculation, tax changes, inflation or growth expectations, any or all of these (and a whole lot more factors), will drive the value of a currency.
And what I have read in the FT and elsewhere too
I agree: I am using well sourced journalists as my information source
What are yours?
there’s an intriguing SNB / Russia / oil connection described here
http://ftalphaville.ft.com/2015/01/15/2090352/the-snb-and-the-russiaoil-connection/
Andrew M is correct. Russia and Euro QE may be the final straws against the peg, but long before the SNB’s balance sheet had swelled to an enormous size, far greater as a proportion of the size of the Swiss economy than US or UK (and their QE programs) as the SNB had been buying Euro securities (at some points buying all available assets).
The FT also noted that many Russian companies are based in Switzerland and may have conducted transactions to optimise currency risk (between USE, EUR, and Francs) and these are not strictly safe haven flows either.
I am not disputing the issue has been growing
But I do think Russian money and the prospect of EU QE tipped it
“The Swiss have unleashed a pretty wild storm in financial markets. All sorts of companies and people today are licking their wounds, and quite a few will simply have to fold. It’s no exception to be so leveraged in foreign exchange wagers that a move of a few percent can wipe you out, let alone one of 30%. Leverage makes sure that right off the bat a whole bunch of foreign exchange brokers, including FXCM, the biggest, are literally dead in the water — FXCM stock fell 90%”
http://www.zerohedge.com/news/2015-01-17/central-banks-upside-down
Mr Murphy,
Switzerland has GDP per capita of $52,000, 25% higher than Germany ($40,000) and 40% higher than the UK and the EU ($35,000). It has unemployment of less than 3%.
Switzerland has public debt of under 30% of GDP (lowest in the OECD), a balanced budget, tax revenues of just over 30% of GDP. It also has a current account surplus of 3% of GDP.
In short, Switzerland has US levels of income and living standards, with European welfare. All this is backed by unparalleled macro-economic stability.
What is that “Finance Curse” again?
I wondered when you would pop up again
I remember you saying Switzerland would not do automatic information exchange
And the EU STD would never be updated
And you really think I should take what you say now seriously?
Just ask a Swiss manufacturer
Mr Murphy,
I do not recall commenting on the EUSTD.
I did however express on your site that, following the concessions it made to the US under FATCA, Switzerland would find it difficult to resist similar demands from Germany, despite its immensely more limited leverage. Incidentally, Switzerland obtained full access to the German financial services market as a condition for automatic exchange of information.
I have several times pointed out that automatic exchange as a global standard would fail and have obviously been proven right: the United States will not sign up to any outbound automatic disclosure. As a result, well over two thirds of global markets will not be applying this standard.
Best regards.
MR
Anyone who can believe the U.S. is two thirds or that progress has ended is clearly in denial
Mr Murphy,
The US Dollar represents approximately 62% of global currency reserves, and is used in a similar share of financial transactions. This is a fact. There is no possible “denial” about it.
As for “progress”, I suggest you refer to the positions of the Republican leadership in Congress, especially in the House.
Regards,
MB
Your fact is not relevant
Not all dollars are in the US
Maybe you weren’t aware of that?
I am aware of the foibles of the GOP