Frances Coppola — The Swiss Have Eliminated The Zero Lower Bound

So, this is fun. Via Zero Hedge comes this report from a Swiss website, Schweizer Radio und Fernsehen (SRF). It seems that a Swiss pension fund tried to evade negative rates on deposits by withdrawing a very large amount of physical cash with the intention of vaulting it. But the bank refused to allow it to withdraw the money in the form of physical cash....

This could have far-reaching consequences. The monetary policy of the last few years has been hampered by the supposed existence of the “zero lower bound”, at which (it is assumed) everyone would opt for physical cash instead of bank deposits and bonds. We already know that the lower bound (if it exists) is actually slightly below zero, since it is the point at which the cost of negative rates on deposits and bonds starts to exceed the cost of holding physical cash (vaulting charges, theft risk and so on). But if investors simply cannot obtain large amounts of physical cash because banks won’t issue it to them, the slightly-below-zero lower bound cannot bind. In which case negative rates could be very negative indeed and no-one would be able to do much about it. There would be no need to abolish or tax cash, as Citi’s Willem Buiter suggests. It could simply be ignored. Welcome to the negative-rate universe.

Forbes
The Swiss Have Eliminated The Zero Lower Bound
Frances Coppola

Does anyone else have the feeling that the wheels are coming off?

Bill Mitchell — SNB decision tells us that the crisis is entering a new phase

Switzerland – home of the secret bank vaults, which house treasures stolen from people (particularly the Jewish victims) by the Nazis during WW2 and ill-gotten cash by capitalists who wish to evade scrutiny of prudential and tax authorities of their domiciled nations. Now it is the canary, which has just sung to tell us that all the hubris about Eurozone recovery cannot cover up the reality that the crisis is not yet over and requires root and branch reform to the policy ideology that exposes the floored design of the monetary union. The – Decision – last week (January 15, 2015) by the Swiss National Bank (SNB) to both break the peg of the Swiss franc to the euro and cut its interest rate on sight deposits to -0.75 per cent signals the surrender by that nation to the reality surrounding its borders. The interest rate decision was required after it decided to scrap the exchange rate peg, given that it didn’t want a credit crunch killing the domestic economy. The appreciation of the exchange rate, which has been held artificially low by the peg, will already undermine domestic spending. The SNB said its decision as reversing its previous “exceptional and temporary measure”, which “protected the Swiss economy from serious harm” as the exchange rate became overvalued. But the decision itself was rather extraordinary given it was seemingly so surprising for most and central bankers are meant to be cautious types. 

But the decision has a logic that is easily understood by those who are not trapped within the Euro Troika narrative.…

Bill Mitchell – billy blog
SNB decision tells us that the crisis is entering a new phaseBill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Miles Kimball — The Swiss are now at a negative interest rate due to the Russian ruble collapse

Unintended consequences in an interconnected global economy.

Quartz
The Swiss are now at a negative interest rate due to the Russian ruble collapse
Miles Kimball | Professor of Economics, University of Michigan

h/t Lambert Strether at Naked Capitalism

Sober Look — Swiss Deflation

Sober Look
Swiss Deflation

Ramanan — The Accommodating Item In The Swiss Balance Of Payments

For the BOP wonks who are following this. Comments welcome here since Ramanan's place doesn't facilitate dialogue in the comments. He generally comments here.

Read it at The Case for Concerted Action
The Accommodating Item In The Swiss Balance Of Payments
by Ramanan

Daniel H. Neilson — When will Switzerland exit the euro?

By fixing the exchange rate, Switzerland has, in a way, unilaterally joined the euro. As a haven destination, Switzerland faces problems not unlike Germany's. Just as the Bundesbank's claims on TARGET2 swell, so too are the SNB's euro-denominated assets....

Read it at INET | The Money View

When will Switzerland exit the euro?

by Daniel H. Neilson

(Dr. Neilson earned his B.A. from Bard College of Simon's Rock in 2001 and his Ph.D. from Columbia University in 2009. In addition to his work for INET, he teaches economics at Simon's Rock.)

(h/t Perry Mehrling at The Money View)