My letter to the Wall Street Journal re: the Swiss National Bank Cheapens Its Currency

Re: Button-Down Central Bank Bets It All

Dear Sirs:
Your excellent report of the unprecedented action by the Swiss National Bank to drive its currency lower is an example of the trap in which all the world's central banks have fallen. Their false paradigm of Keynesian and Monetarist monetary theory blinds them to reality. In their false paradigm the weaker the currency the better, because a weak currency spurs exports. But this shallow view fails to see the underlying reality that spurring exports with cheaper money is paid not by one's trading partners but by one's own citizens via higher prices and a lower standard of living. It is an internal transfer of wealth. Furthermore, any export gains that accrue as a result of weakening the currency will be short lived, because the exporters' factors of production will increase as inflation ravages the entire country. At that point exports will fall and the option will appear to be that another round of money printing is required. If this process is not halted, the currency will collapse. Since Switzerland is a relatively small country, the likelihood of its currency being the first to collapse is very great.