Swiss Coping with Supersonic Rise of their Currency
Tuesday, 16 August 2011

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 Vice President Thomas Jordan said the central bank is 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 Café St. Gotthard in Zurich costs $8.30, with one Swiss franc buying $1.2816 at today’s exchange rate.


Billionaire entrepreneur Christoph Blocher, one of the politicians who called on SNB President Philipp Hildebrand to resign after the bank lost $21 billion last year in a vain attempt to restrain the currency, now supports a franc target.

“The franc is catastrophically overvalued,” said 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 39 percent overvalued against the euro, based on purchasing power parity as calculated by the Organization for Economic Cooperation and Development. That’s “a headache,” according to ABB Ltd. (ABBN), 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.

‘Drastic Decisions’

“If the franc can’t be weakened, many machinery makers will have to take drastic decisions this fall,” Economiesuisse, the country’s biggest business lobby group, said. The Swiss currency appreciated as much as 1.3 percent today, trading at 1.1181 at 1:48 p.m. in Zurich, up from 1.1329 yesterday. Versus the dollar, it was at 77.86 centimes.

The franc, considered a haven in times of turmoil, has appreciated 11 percent versus the euro this year, reaching a record 1.0075 on Aug. 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 Corp. pays 128 percent more for a Big Mac than a U.S. diner, up from a 72 percent 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 (UBSN) showed today. Zurich residents also had the highest wages and purchasing power, it said. Geneva ranked third in terms of prices.

 



  

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