EYE-BALL Guru on – An example of a Government truly concerned about Currency appreciation …

May 28, 2012
An example of a Government truly concerned about Currency appreciation …
The Swiss are regarded as some of the best the money managers of the world – and they have endured to maintain that reputation.   Some 12 months ago when the Euro first came under pressure as the EuroZone crisis deepened, the Swiss came up with a plan to protect their currency from becoming a ‘safe-haven’ investment thus making its economy suffer. They ‘pegged’ their currency or put a floor to the Euro at SF1.20.

Australia has had the same problem with currency appreciation since the mid 2000’s, but this ‘dumbass’ fuckwit of a Government, and their predecessors with a equally ‘dumbass’ RBA have stubbornly taken a different approach.  The Government want to change Australia’s Industry focus and modernise everything – they want to give up tourism, manufacturing, retail and any other industries who just can’t compete in a global economy where the high A$ has priced them out of the market.

The RBA and Government could have done many things if they wanted – they chose to just let the capital flows come in and suck Australia dry due to its reliance on high interest rates relative to our major trading partner,s and its ‘cash and carry’ trade opportunities.

The Swiss are again thinking ahead of the curve trying to protect their competitive edge and their economic future.  They see the collapse of the ‘Euro’ and are preparing for its outcomes.

The following ‘Wall Street Journal’ story has prepared the world in the event that the Euro does go into freefall – it’s telling the world that if you but Swiss Francs – then there will be a fair price to pay for the safe-haven experience.

The story is published below: [On-Line link to story.]

Swiss Prepare Plans in Case of Euro’s Demise

| By ANITA GREIL | Updated May 27, 2012, 2:57 p.m. ET |

ZURICH—Switzerland is considering capital controls to fight a sharp rise in the Swiss franc in the event of a euro-zone collapse.

Capital controls—tools that directly influence the inflow of capital into Switzerland—are a radical measure that the Alpine nation hasn’t employed since the 1970s.

The risk of a potential Greek exit from the euro has increased in recent weeks as the political crisis in Athens has intensified, heightening worries about possible effects on other heavily indebted euro-zone nations. This is strengthening the Swiss franc, traditionally considered a refuge in times of economic and political turbulence.

Switzerland—surrounded by, but not a member of, the European Union—is seen as a haven of fiscal and political stability, but turbulence in the currency bloc is a major risk for its economy. The country depends heavily on exports for growth, and the strong franc is hindering exports at a time when demand is slumping in the euro zone, Switzerland’s biggest trade partner.

Because of the threat a euro collapse presents for the country, Bern earlier this year set up a task force to evaluate measures to be taken if such an event occurred, and measures to combat excessive franc strength that require coordination. The task force is led by Swiss central bank Chairman Thomas Jordan, Finance Minister Evelyne Widmer-Schlumpf and Anne Héritier Lachat, head of financial-services industry regulator FinMa.

“We must be prepared for the worst case, under which the currency union falls apart, even though I don’t expect this to happen,” Mr. Jordan said in an interview with Swiss weekly Sonntagszeitung.

Mr. Jordan’s comment came as European Union officials are stepping up contingency planning for a possible Greek exit from the euro zone. Finance ministers from the 17 countries that use the euro agreed last week on the need to develop national contingency plans in case Greece drops out of the common currency.

Worries about the stability of the euro zone have heightened in recent weeks, putting further pressure on the Swiss franc. As result, the euro has traded close to the 1.20 Swiss franc floor that the Swiss National Bank introduced in September when the currency traded at record highs against the euro and the dollar. Mr. Jordan said in the interview that the SNB will continue to defend this level with utmost determination, even under very difficult circumstances.

The floor has helped exporters, and has contributed to the country avoiding recession. The SNB has so far managed to defend the franc without much visible effort, even though the euro briefly fell below 1.20 francs in April for a few seconds. The drop has been attributed to trades among banks that don’t deal directly with the SNB and were selling euros for less than 1.20 francs for reasons that remain unclear.

Introducing a minimum rate for the euro against the franc didn’t require any involvement from the government, but more extreme measures such as capital controls or negative interest rates would.

“The task force focuses on measures that require cooperation between the government and the central bank to fight Swiss franc strength,” Mr. Jordan said in Sonntagszeitung. One such measure would be capital controls.

In the 1970s, Switzerland used such extreme measures to curb excessive demand for its currency. The country prohibited foreign investments in Swiss securities and real estate, and introduced negative interest rates on foreign deposits. Both tools failed to stem the Swiss franc’s rise, which only halted after the central bank introduced a temporary peg to the deutsche mark, Germany’s currency at the time.

The SNB’s floor on the franc has won the backing of the International Monetary Fund, not usually known for its endorsement of interference with market forces. The fund is more skeptical of other potential measures, though, warning in its latest report on the Swiss economy that capital-flow measures would be complex to design and costly given the country’s role as an international financial center.

Mr. Jordan himself recently dismissed negative interest rates on foreign deposits as a tool for curbing safe-haven flows.

Write to Anita Greil at anita.greil@dowjones.com

This story is a sign of a thinking Government who knows what ‘capital inflows’ can do to economy.  It shames the RBA and Government of Australia when all they monitor is ‘inflationary pressures’ and use interest rates to stabilise the economy.  The A$’s mean average since it floated in 1983 averages A$0.75c against the US$ – the rise in recent years is directly responsible for the 10,000’s of job layoff’s and business shutdowns across the Nation.  Reskilling a workforce for a mining boom of the future – that has been 10 years in the making – this is a course of action that is extreme ‘high-risk’ to say the least, it is also short-sighted in that Brazil and African resources are coming on-stream and will be ultra competitive with Australian resources.  This Government has the imagination of a ‘turtle’ figuring a way to cross a road.

Also – this Government will be long gone when the reality of their ‘asleep at the wheel’ responses are exposed.  Millions of families and the future of this Nation is being exposed due to the incompetence of the RBA and the Government.  Both sides of Politics are a party to the RBA’s charter and the RBA can only do as instructed by the bi-partisan agreement over RBA policy.

EYE-BALL Guru has been at this Government and the RBA with direct contact for nearly 2 years on this single point – since this blog started in fact – and not a thing has changed.    The World’s Best Treasurer – Wayne Swan is the greatest dunce in the World on economic matters and in how to manage an economy.  All they see is an opportunity to whack the mining industry with a great big new tax – (MRRT) and that all the other industries need to face up to the fact that this is where Australia is putting all its eggs.

At least the Swiss have a track record that others can respect – Australia should learn a lesson.


The EYE-BALL Guru …

  1. david the pramatist
    May 28, 2012 at 3:26 pm

    Your comments are spot on and with very good timing.
    Maybe the RBA could look at recommending at their next monthly borad meeting a management price for the $A base on the same outlooks as it does for interest rates, make judgements accordingly and look for the moment to introduce a trading range of say $1 parity to the US with a floor of >85c. this could be adjusted of the back of commodities which in real terms drives the $A. This gives all the industries that have been bastardised a chance!

  1. May 29, 2012 at 3:12 am
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