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Learning
Markets reports that quantitative easing could send USD/CHF to
1.2300.
(emphasis mine) [my
comment]
Quantitative
Easing Could Send USD/CHF to 1.2300
The Swiss government appears to be playing "follow the leader" with
the British government and the U.S. government as it jumps into the
quantitative-easing game.
On the heels of an interest rate cut from 0.50 percent to 0.25 percent by
the Swiss National Bank (SNB)---led by Jean-Pierre Roth [aha!
Now I have the name of the man leading the Swiss franc to ruin.], the
Swiss government began flooding the market with Swiss francs (CHF) to curb
the increases in value the CHF has seen during the past few months.
As a so-called "safe haven" currency, the CHF has been
appreciating in value during this economic crisis. But now, with the Swiss
government intervening, the CHF will most likely continue to lose value---which
could push the USD/CHF currency pair as high as 1.2300 in the short term.
My reaction: Swiss
National Bank (SNB) is “flooding the market” with printed Swiss francs
in order to buy worthless dollars. (Reminder, I used to live in Switzerland
long, long ago. So I am a little ticked off by the poor leadership of the SNB
in recent years).
Why is the SNB working to destroy the Swiss franc? The credit goes to
Jean-Pierre Roth, president of the Swiss National Bank.
Who was responsible for Switzerland’s disastrous decision
to sell 1300 tons of gold? You
guessed it, the current head of the SNB: Jean-Pierre Roth. The details are
below.
Swiss Info reports gives a quick bio of Jean-pierre Roth.
Jean-Pierre
Roth was born in 1946 and started working for the Swiss National Bank in 1979
after a period of teaching at Geneva University.
Between 1986 and 1996 Roth was in charge of foreign exchange and money market
operations at the central bank.
In 1996 he was made a vice-president with responsibility for capital
markets, bank notes, liaising with the government and controlling gold
reserves.
Five years later he was promoted to the role of president, steering the
central bank through the challenges of the 9/11 terrorist attacks in the
United States in 2001, the introduction of the euro currency throughout
Europe and the start of the current financial crisis.
Roth has also chaired the board of the Bank for International Settlements,
based in Basel, since 2006. He will step down from this role in March.
Finally, in
Berne on April 29 2005, Jean-Pierre Roth, speaking at the general meeting of
shareholders of the Swiss National Bank, gave the following speech about the completion of the Swiss gold sales.
Completion
of the gold sales
On 31 March, we completed our sales of the 1,300 tonnes of gold no longer
required for monetary policy purposes [Arrrg]. These sales had begun
on 1 May 2000. The fears expressed in some quarters that our gold sales
would destabilise the market have proven to be unfounded [Of course they
did.]. By selling the gold in small instalments and according to a fully transparent
schedule, we succeeded in assuaging the market's fears. Moreover, our
sales strategy and risk hedging also proved effective in financial terms: the
1,300 tonnes of gold were sold at an average price of CHF 16,241 per kilo
[CHF 16,241 per kilo. Keep that number in mind]. This was CHF 700 more
than the average market price during the same sales period. An additional
profit of more than CHF 900 million was therefore realised.
At the end of the sales program, the National Bank still held 1,290 tonnes
of gold, corresponding to one third of the value of its currency reserves. [In
other words, instead of being two third gold and one third wortless paper
dollars, Swiss foreign reserves are now two thirds worthless paper dollars
and one third gold.]
Even though it has been demonetised, the yellow metal still plays an
important role in our reserves [Then why did you sell over half of it?]. It
is an asset category that traditionally affords good protection in times of
crises in the international monetary system [Yes, wouldn’t it be nice
to still have that gold now?]. It also allows us to hold part of our
reserves on our own country, which is not possible with financial assets.
Moreover, as expressly requested by Parliament, Article 99 of the Federal
Constitution requires the National Bank to hold part of its currency reserves
in gold [Thank god! Otherwise you would have sold all of it, wouldn’t
you?]. The Governing Board considers that the holdings of 1,290 tonnes are
appropriate to the current international environment. It does not intend to
proceed with further sales of gold.
Average price of
Swiss gold sales: CHF 16,241 per kilo
Price of gold today: CHF 35,405 per kilo
Difference: CHF 19,164 per kilo
MINIMUM cost of Jean-Pierre Roth’s decision to sell 1300 tons of
Swiss gold: CHF 22,600,874,865
Conclusion: Switzerland might be a safe place to keep your gold, but
the Swiss franc is not a safe currency to hold your cash. Jean-Pierre Roth is
a true Keynesian who believes “gold is a relic” and printing
money (quantitative easing) is the costless solution to all the world’s
problems. So until Jean-Pierre Roth from the SNB, stay away from the Swiss
franc.
Eric
de Carbonnel
Market Skeptics
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