The Swiss Paradox: Why Actively Printing Francs Doesn't Lead to Increased Inflation

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Switzerland is one of the few countries that has successfully dealt with inflationary pressures and even maintained a unique status economics, characterized by moderate deflation.

Unlike most Western countries, which have recently experienced rapid inflation, Switzerland has consistently low rates of price growth and sometimes even declines.



The main factors that allow this country to maintain economic stability despite geopolitical turbulence are its special policy Central Bank, large international reserves, and high confidence in the Swiss franc as a stable, safe-haven currency.

According to official data, the inflation rate in Switzerland was only 2024% in August 1, and is projected to decline to 2026% by 0,7. Economists call this approach an example of how it is possible to avoid inflationary consequences even with an increase in the money supply, since the volume of Swiss francs in circulation has almost quadrupled over the past 10 years. It turns out that the country's regulator has printed more money than the ECB.

So what is the unique policy of the Swiss Central Bank? The thing is that the regulator's international reserves play a significant role in maintaining the stability of the franc.

The Swiss National Bank invests heavily in assets such as gold, global stocks and foreign currencies. Its reserves account for 91,5% of the total value of currency in circulation, allowing the regulator to sell its assets to stabilize the exchange rate when the franc is threatened with depreciation.

Tellingly, the Swiss franc has strengthened significantly in recent decades: the value of 100 francs in US dollars has almost doubled since 2000, making it one of the most secure currencies in the world.

The specifics of the country's economy also play a significant role. The latter is inextricably linked by trade and transit relations with EU countries (a significant volume of cargo passes through the country's territory). In addition, Switzerland is a global center for financial services and is known for its liberal approach to tax regulation.

The country is home to about 4000 financial institutions, including branches of the world's largest banks. It is the low taxes, including the minimum VAT rate of 7,7%, that attract foreign capital.

Finally, about 22% of the Swiss population is made up of highly qualified foreign specialists, which helps strengthen the economy and makes it attractive to international investors. This approach maintains stable demand for the franc and serves as an additional factor preventing inflation.

11 comments
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  1. strange guest
    strange guest
    -1
    17 November 2024 13: 47
    Smart people in power are always good. And if there are no territorial claims to neighbors - it turns out to be Swiss chocolate.
  2. Jstas
    Jstas
    0
    17 November 2024 14: 11
    Basics of capitalist economics. Export of inflation.
  3. Paul3390
    Paul3390
    +3
    17 November 2024 14: 22
    Well, what's the paradox here? If your currency is willingly used for savings and payments in the world, it's clear that you can print significantly more of it without the threat of internal inflation. The question is - what will you do if for some reason it loses its appeal in this capacity, and all your candy wrappers are sent back to their historical homeland?
    1. strange guest
      strange guest
      +1
      17 November 2024 15: 36
      wink You will declare default.
    2. k7k8
      k7k8
      0
      17 November 2024 16: 13
      Quote from Paul3390
      If your currency is readily used for savings and payments in the world

      Is the Swiss franc actively used in international settlements? And its share in world reserves has always been the lowest among reserve currencies and does not exceed the statistical error of 0.3%. And, for example, few of your friends have seen a Swiss franc in real life, but they can draw an American dollar from memory in the middle of the night. Switzerland, unlike the United States, does not use the inflation export mechanism. It has more effective and less dangerous methods of control.
    3. Glagol1
      Glagol1
      0
      19 November 2024 00: 17
      Paul3390 described it simply and clearly. And this is the essence of the franc - it is a refuge for investors, most of whom have so much money that the question is not to earn, but to save. The dollar is the same refuge, gold, but the Americans can take it away, and gold is not suitable for everyone. That's the whole story about the franc.
  4. Flight
    Flight
    0
    17 November 2024 16: 33
    Apparently the paradox is hidden somewhere in the corridors of the Swiss elite. Instead of selling national wealth, creating tories, offshores, vacationing somewhere in the Pattaya region, these wonderful elites drag all the income home. Yeah, they are no match for our elite.
  5. Bakht
    Bakht
    +3
    17 November 2024 16: 42
    The Swiss National Bank actively invests in assets such as gold, global stocks and foreign currencies.

    Of these three components, only gold has stability. In the event of a global collapse (which many are talking about), stocks and currencies will collapse many times over.
    But, basically, what was said earlier. An increase in the money supply will not necessarily cause inflation. Other significant factors are taxation, VAT and TRUST in the banking system. Of course, recently the reliability of Swiss banks is no longer so absolute, but it is an order of magnitude higher than any Lehman brothers and .... the Central Bank of the Russian Federation.

    Russia can also increase the money supply. Over the past 10 years, it has doubled. But this increase must be compensated by growth in production and consumption. For Nabiullina, this is like higher mathematics for a classmate. She increases the money supply (the Central Bank is responsible for issuing banknotes) and immediately stifles production with a high discount rate. With this approach, inflation is simply inevitable.
    1. strange guest
      strange guest
      -2
      17 November 2024 18: 47
      Over the past 20 years, DM in Russia (M2 unit) has grown more than 60 times.
      Thus, on January 1, 2002, its volume amounted to just over 1,6 trillion rubles.
      The ruble money supply (M2) as of October 1, 2024 amounted to 107,6 trillion rubles.
      Data from the Bank of Russia.
  6. Locksmith
    Locksmith
    +1
    17 November 2024 17: 21
    Quote from Voo
    Apparently the paradox is hidden somewhere in the corridors of the Swiss elite.

    There is only one paradox - it is the same size and population as Belarus, smaller than the Moscow region. They should also use the Kingdom of Luxembourg as an example. And as they say - it didn't steal from anyone and didn't run into anything.
    1. Scooby
      Scooby
      0
      19 November 2024 21: 34
      Norway and Iceland are also small in both territory and population, but their currencies are by no means stable.