Swiss ponder the unthinkable to battle runaway currency
Published 17/08/2011 | 05:00
Switzerland, the nation that hasn't gone to war with a foreign power since Napoleon, is reluctantly debating a generational taboo: ceding monetary independence to win a battle over its runaway currency.
Swiss National Bank (SNB) vice-president Thomas Jordan said the central bank was assessing "a whole range of options" to prevent the franc, which reached a record against the euro this month, from making Swiss goods prohibitively expensive.
Even a cup of coffee at Cafe St Gotthard in Zurich costs €5.75, with one Swiss franc buying 90c ($1.30) at yesterday's exchange rate.
Billionaire entrepreneur Christoph Blocher, one of the politicians who called on SNB president Philipp Hildebrand to resign after the bank lost €14.5bn last year in a vain attempt to restrain the currency, now supports a franc target.
"The franc is catastrophically overvalued," said Mr Blocher, a former justice minister for the People's Party, Switzerland's largest.
"It's almost like economic warfare -- to wage a war, you must use all measures at your disposal, and you must win."
Switzerland's currency is 39pc overvalued against the euro, based on purchasing power parity as calculated by the Organisation for Economic Co-operation and Development.
That's "a headache", according to ABB Ltd, the world's largest maker of power-transmission gear, which responded by buying more parts from euro-region suppliers to feed its Swiss factories.
Workers at Lonza Group AG, a Basel-based chemicals maker, are working longer hours without extra pay, while VonRoll Infratec AG, a maker of piping systems, is paying some salaries in euros.
"If the franc can't be weakened, many machinery makers will have to take drastic decisions this autumn," Economiesuisse, the country's biggest business lobby group, said.
The Swiss currency appreciated as much as 1.3pc yesterday, trading at 1.1181 in Zurich, up from 1.1329 the day before.
The franc, considered a haven in times of turmoil, has appreciated 11pc versus the euro this year, reaching a record 1.0075 on August 9. Against the dollar, it appreciated to an all-time high of 70.71 centimes earlier this month.
A visitor to a Swiss branch of McDonald's pays 128pc more for a Big Mac than a US diner, up from a 72pc premium a year ago, according to a Bloomberg index that measures burger prices in dollars, based on data collected by 'The Economist'.
Zurich is already the world's second-most expensive city after Oslo, a study conducted by UBS AG showed yesterday. Zurich residents also had the highest wages and purchasing power, it said. Geneva ranked third in terms of prices.
The Swiss government and the central bank held "intense" talks over a possible franc target and measures are ready to be adopted this week.
The SNB may introduce a lower limit of slightly above 1.10 against the euro before gradually increasing it, according to the newspaper. (Bloomberg)