Home > Uncategorized > QE and inflation (not), Swiss edition. Two graphs.

QE and inflation (not), Swiss edition. Two graphs.



Graph 1. Printing Francs to satisfy external demand for Francs led to a fast increase of the amount of money in Switzerland. Did this lead to inflation?

Swiss inflation(not)

After 2008 rich people from all over the globe started to  buy Swiss Francs. This, of course led to appreciation of the Swiss Franc. The Swiss national bank didn’t like this: bad for exports. And, related to this but much worse, structural lower demand for export products of a small country like Switzerland will erode the manufacturing base of this country. Highly productive fixed capital, specialized knowledge hubs, production ecosystems – these all will flounder. Not good. What to do? 

Switzerland is a monetary sovereign country. In 2011 the national bank decided to print money and sell it at a fixed Euro-price to foreign rich people. This policy was highly succesful: the exchange rate of the Swiss Franc (in Euro) stabilized. The ‘cost’ of this policy was of course that Switzerland assembled an awful amount of foreign currencies. The Swiss did lose their nerve at the end of 2014 and tried to stop this policy. Once the understood that this led to a fast and humongous appreciation of the France, with depressing consequences for the Swiss economy, they re-installed it and again with success. Quite some rich foreigners parked their Franc at normal deposits Swiss bank which led to a doubling of the ‘M3’ amount of exchange money. An interesting question: did this increase in the stock of money lead to inflation? The answer is clear: no, it didn’t. While the revaluation at the end of 2014 did lead to deflation. The money was not used in the exchange economy. It was just stacked away.

Graph 2. Despite the fast increase in the amount of money, the Swiss price level declined (mainly because the Franc became more expensive relative to other currencies)


  1. September 30, 2018 at 11:08 pm

    The key insight is that the stock of money has no direct relationship with the stock of goods or the stock of assets in an economy. These three aggregates are generally very different. Instead what matters is the amount of goods and the amount of money that come to a market to be traded. Sure enough, under the schoolbook assumption that production is fixed and all the money is used every month to buy groceries, more money will cause inflation. But production, especially of industrial goods is not supply limited, and rich people don’t use their money on everyday consumer goods. Now asset price inflation, that is another matter.

    • September 30, 2018 at 11:50 pm

      Cash is best was and remains the key concern of the very rich and the very poor. That is all they have in common. The first group never need to know how much they have, the latter must know as they must feed their starving children.

  2. Craig
    October 1, 2018 at 12:58 am

    The actual and operant cause of “monetary” inflation….isn’t money or necessarily even its amount in the economy at all. It is entirely caused by the system’s chronic and continual scarcity of actually available individual incomes to spend (which by definition is a simultaneous scarcity of available business revenue) …and no present better alternative to commercial decision makers raising their prices when they perceive more money coming into the economy that they hope to garner as more business revenue.

    A 50% discount/rebate policy at the point of final retail sale entirely rectifies both scarcities by doubling individual potential purchasing power and hence potential business revenue. Also, for those unconscious of the digital nature of the money, pricing and accounting system’s and thus the significance of a digital policy like the discount/rebate at retail sale, it simultaneously integrates price deflation painlessly and beneficially into profit making systems.

    Paradigm changes are characterized by the inversion and transformation of problematic dualities/problems like the inversion of the positions of the earth and the sun and the transformation of cosmological thinking from terra-centric to helio-centric…or the inversion of the reality of monetary scarcity to abundance and the transformation of the systemic condition from inflationary to deflationary.

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