7 September 2011

Neutral Switzerland Joins Currency Wars

There has been discussion in earlier posts on this blog about the role of reserve currencies and of the developing conflict over the value of different national currencies. Switzerland's currency, the Swiss Franc, plays a unique role in the global economy. It is the store-of-value currency of choice, rather than the medium-of-exchange currency of choice, which until very recently has been the dollar.

So what does it mean that Swiss francs will now be sold at a price determined by the Swiss central bank? It means that for the first time in around 30 years one of the world's leading reserve currencies is not finding its price according to market forces. Those market forces were driving up the value of Switzerland's national currency to such a degree that it was find it impossible to be competitive. It's central bank is now maintaining a lower level.

Two points are of interest to observers of the global economy. First, this is a historic moment. Those of us who have been ridiculed for suggesting that a system of freely floating exchange rates removes democratic control over national economies, encourages conflict between nations, and facilitates harmful speculation have been vindicated. In currency terms, one of the most powerful players in the global economy now agrees with us.

But more important is the clear need to separate the role a national currency plays in facilitating economic transactions within a nation-state from that of enabling trade between nations. The hegemony of the dollar since 1945 as the global medium of exchange has enabled the obscene consumption of that country's citizens and facilitated its acquisition of military firepower that has allowed it to reign supreme. It has also destroyed that country's domestic productive economy. Switzerland fears similar consequences. It has benefited hugely from being the safe-haven currency, but in this era of instability is paying the price.

The logical answer is clear, and has been a key demand of posts on this blog since its inception. What we need is a global trading currency that is not linked to any national economy. Without this, the currency wars can only grow more intense, and, as we saw in the 1930s, currency wars can lead to wars that are even more destructive.


  1. And at what rate would the various national currencies trade to the universal trading currencies?

  2. Spot on, just like Keynes said, floating currencies only benefit speculators.