Ladies and Gentlemen:
I read somewhere that the swiss franc had only recently been taken off it’s gold backing. If this is true I’d like to learn about how their economy performed
compared to the other economies under a fiat currencies. Please refer me to a book, an article or post what you know so I could learn. Thanks.
~Calvin
Switzerland was the last country to abandon the classic gold standard in 1936 (if I remember correctly, the hour is late). That was the last year Swiss could walk into a bank with banknotes and walk out with gold bullions.
However the Swiss constitution required the currency to be backed by a certain amount of gold reserves, I don’t remember exactly the percentage. Because of this Switzerland probably had by far the largest gold reserves in the world when the country’s population and GDP are taken into account. Swiss francs used to a common “inflation-fighting” investment for Europeans because the currency was so stable when compared to others, like the French franc and the Italian lira.
The 1999, following a similar decision by the Bank of England, the SNB (the Swiss equivalent of the US FED) decided to sell half of its gold reserves and replace them with euros, dollars, yens etc. This required the contitution to be altered, which was duly done by the Berne parliament. If I remember correctly the popualr referendum to ratify the change saw a sweeping victory in the great city cantons (Zurich, Geneva, Basle etc) but a sound defeat in the old Forestal cantons (Zug, Schwyz, Unterwalden etc). Given the difference in population it was a sweeping victory for the new order.
How has their economy fared? Well, let me tell you. I live less than a hundred miles from the Swiss border and everything up there, given lower taxes, stagnating economy and an incredibly favorable exchange rate, has become so cheap that it’s worth the trip. So many persons were swarming there to buy cigarettes that the Swiss were pressured by the EU to raise tobacco prices and Italian custom officers at the borders have seen a sharp rise in numbers to “fight” the flood of goods entering the country without paying import dues.
The above is inaccurate and I suspect an attempt to dishonestly give a misleading impression of the Swiss economy.
[1] Relative to other European economies the Swiss economy is not stagnating, certainly not as compared with any of its neighbours.
[2] Canton Zug voted for the 1999 measure. (nitpicking)
[3] The Swiss pay low taxes on tobacco poducts because they a are overwhelmingly smokers and must approve increases in tax. (Though it is possible that there are Canonal tobacco taxes of which I am unaware.
Despite being a heavy smoking nation the Italians pay high taxes.
This difference in tax rates is the reason why tobacco products in Switzerland are cheaper than in France or Italy.
It is central government intervention in these countries that creates expensive tobacco.
Switzerland remains the most expensive country in Europe.
SS
I probably confounded Zug with Uri but this doesn’t change a thing. The official growth extimates for 2007 are 2.6%, the same as Germany, slightly higher than France (1.8%) and Italy (1.9%). Of course, these are only extimates and we all know that governments tend to get a little cocky with growth figures. There are now some extimates with much lower figures (much closer to the truth) but I’ll stick with these widely available datas.
Yes, Switzerland used to be expensive to live in, very expensive… but the exchange rate has plummeted making it quite affordable for Euro-carrying customers. But why has it plummeted?
My guess is since the swiss franc lost it’s gold backing, it is now subject to the same ills that afflict other fiat currencies: debasement by government.
The exchange rate is the same as it was 10 years ago 1.6 CHF to the euro ten years ago and 1.65 now.
This may mean that the euro and franc have both been debased.
If Switzerland is cheaper than it was relative to its neighbours this means that the Swiss themselves can buy more with their money, because they earn more than their neighbours.
In France middle class salaries rarely reach 50,000 euro
in switzerland they rarely fall below 100,000 francs
The bahnhof strasse is still the most expensive street in europe.
And they pay low taxes.
SS
The weakness of the swiss government gives them less power to debase the currency.