Copyright 2012 by John T. Reed
In late May 2012, the Swiss National Bank said it is making contingency plans that might include imposing capital controls.
Their reason is the opposite of why I said the U.S. will impose capital controls when it hyperinflates the U.S. dollar. The U.S. will impose the controls to outlaw a run on the U.S. dollar. Switzerland is considering capital controls to prevent a run to the Swiss franc.
What does this mean for my advice?
I have generally concluded that Europe is too big of a pain in the ass as far as opening bank accounts there. Plus there are very few countries left that are not using the euro or slated to do so in the future.
Buying Swiss francs outside of Switzerland still seems like a good idea, maybe an even better idea, in light of the Swiss capital controls threat.
Basically, such Swiss capital controls would say, “So you want to buy our currency? Well, you cannot. We won’t sell it to you.” I would think that would make such Swiss francs as are available outside Switzerland more valuable. Swiss capital controls would only apply to capital within, or trying to enter, the country of Switzerland and its banking system.
Indeed, I am not sure capital controls work at all, especially in reverse to stop a run TO the currency in question.
What is Switzerland’s problem? The more popular and higher priced their currency becomes, the more their export and tourism industries are hurt. Swiss good and Swiss tourism become too expensive. By refusing to allow their currency to become popular and worth more in relation to other currencies, they hope to keep their export and tourist industries fully employed and happy.
Of course, these steps hurt their import and Swiss-tourists-traveling-abroad industries for the same reasons. I talk about that in my 16 sides of the same coin discussion in my book How to Protect Your Life Savings from Hyperinflation & Depression.
One capital control Switzerland is considering is negative interest rates on Swiss bank accounts. That would mean you have to pay them to take your money. Negative interest rates are a symptom of deflation. In deflation, cash in a safe deposit box not only earns a positive real return, it is a better return than the same Swiss francs in a Swiss bank account. Just as you do not receive interest from the bank on cash in a safe deposit box during inflation in that currency, so do you not have to pay interest to the bank on currency in a safe deposit box during deflation in that currency. Cash in a safe deposit box or mattress is dumb during inflation and smart during deflation. If you have trouble understanding that, it is because you have spent so much of your life in inflation that you have trouble thinking outside the inflation box.
All the more reason to simply buy the currency and put it into your safe deposit box as I have been urging for some months.
So to paraphrase the old Castro slogan:
Swiss francs, Sí
Swiss bank accounts, No
If anyone is disconcerted by my changing my advice, tough. This is a very dynamic situation. Every couple of weeks, the financial world holds its breath as one or another euro zone country holds another election. Things never get better though, so perhaps Europe needs to stop hoping against hope that the Greeks will grow up and just amputate them before they infect the rest of the zone.
As the situation changes, my advice changes, as it should. Indeed, the ongoing rapid changes are evidence of the impending trouble caused by the U.S. dollar hyperinflating. I am not deciding what goes on in Europe. I am just reacting to it and explaining it.
John T. Reed