The WSJ has an article in which it congratulates the Swiss National Bank on the latter’s decision to buy "unlimited quantities" of Euros. Think about that for a minute.
It’s worth thinking about what’s happened to the Swiss franc. Basically, Switzerland is the only country that (until recently) wasn’t actively trying to create inflation. Many "investors" (i.e. the few remaining people that actually spend less money than they earn on a regular basis) shifted some of their savings out of currencies that were being made worth less into francs.
Here’s how the WSJ (hilariously) explains this situation:
Central banks are the monopoly suppliers of the commodity known as money. When a currency like the Swiss franc appreciates rapidly, the market is sending a signal that not enough francs are being printed to meet demand.
Er, actually the signal was precisely the opposite. The entire reason everyone was demanding francs was that the Swiss National Bank wasn’t printing more like a drunken sailor.
The WSJ goes on to explain how easy central planning really is:
In other words, it [the SNB] seems prepared at last to meet the increased demand with additional supply. This need not be inflationary for Switzerland. Should demand for francs recede in the future, the central bank can easily mop up the additional money it’s creating now by selling the foreign-exchange it’s currently buying to keep the franc steady.
What could go wrong?
Then there’s the final paragraph:
It’s not fashionable these days for central bankers to worry too much about the external value of their currencies.
Really? Is that why the Bernank and Greenspan always say they support a "strong dollar"?
Since the collapse of the Bretton Woods exchange-rate system in the 1970s, policy makers have grown fond of saying that markets should set exchange rates. But markets can’t set the value of a commodity whose sole supplier is the central bank, and this pseudo-laissez-faire is an abdication of central banks’ duty to control the supply of their currency, both internally and externally. Full marks to the Swiss for breaking with this mistaken central-bank orthodoxy.
So if we have centrally planned interest rates and exchange rates, what’s free about any of this?
The real question is this: in a race to the bottom, can the Swiss win? I suspect the answer is no. The WSJ fails to mention the fact that the last time the Swiss tried a currency peg . . . it ended in high inflation (I’m sure this part of the story was cut back by the editor at the last minute or something). Hopefully for the fiscally responsible Swiss, today’s central planners are better than the ones in the ’70s.