The “War on Cash” Migrates to Switzerland by Pater Tenebrarum

The “War on Cash” Migrates to Switzerland” relates a text book example of the problems of interventionism. In “Interventionism and Positive Feedback Loops” I stated:

It occurred to me that economic interventionism by government can be thought of in terms of a positive feedback loop.

Thus, as in all systems involving positive feedback loops, the situation eventually spirals out of control. Indeed, if some force is not used to check the effects of positive feedback, the end result is a runaway system that blows up.

In that blog post, I also provided a quote from a lecture given by Mises that illustrates the problems of interventionism.

In the case cited by Tenebrarum, we see the following chain of events.

  1. Switzerland emerges from the initial ravages of the onset of the greater depression in 2008-2009 in much better economic shape than other major currency areas. This causes the Swiss franc to rise in value versus these currencies.
  2. The neo-mercantilists who infest the Swiss government become alarmed that this rise in the currency will hurt the Swiss economy by making Swiss exports less affordable by the rest of the world. (Note how it never seems to occur to them that the Swiss export sector thrives due to the reputation for quality that the Swiss have established and that a rise in the Swiss franc will lower the price of imports which benefits Swiss consumers.) This prompts them to push the benchmark interest rate to near 0 and peg the Swiss franc to the Euro.
  3. Predictably, pegging a strong currency to a weak one fails. As the Swiss abandon the peg, chaos grips the world currency markets. (Note that the interbank currency market dwarfs all stock and bond markets in terms of daily trading.)
  4. Also predictably, when the peg failed, the Swiss central bank pushed interest rates lower. This time, they pushed them into negative territory.
  5. The Swiss central planners thought that negative interest rates would force market actors to do something with their money other than let it sit in banks. Such activity was supposed to increase economic growth. (How this was supposed to happen is of course a mystery. Such considerations never bother modern central planners. When their econometric models tell them to do something, they do it, much like following an oracle.)
  6. With negative interest rates, the unintended consequences of interventionism emerge. Pension funds are loosing money due to this policy. Such funds are severely hampered by law as to what types of investments they can make. A certain fund manager realizes that even with storage, insurance, and transportation costs, he would benefit from transferring money from negative interest rate investments into cash stored outside of the banking system. He attempts to do this and his bank refuses.
  7. As pension funds continue to loose money, their ability to meet future payouts becomes difficult to impossible (the later is a widespread problem in US states and municipalities for public worker pensions). As a pension crises emerges, there will be calls for a national bailout. Thus resulting in rising taxes and more money printing which will hamper the Swiss economy.


The war on cash is proliferating globally. It appears that the private members of the world’s banking cartels are increasingly joining the fun, even if it means trampling on the rights of their customers.

Yesterday we came across an article at Zerohedge, in which Dr. Salerno of the Mises Institute notes that JP Morgan Chase has apparently joined the “war on cash”, by “restricting the use of cash in selected markets, restricting borrowers from making cash payments on credit cards, mortgages, equity lines and auto loans, as well as prohibiting storage of cash in safe deposit boxes”.

This reminded us immediately that we have just come across another small article in the local European press (courtesy of Dan Popescu), in which a Swiss pension fund manager discusses his plight with the SNB’s bizarre negative interest rate policy. In Switzerland this policy has long ago led to negative deposit rates at the commercial banks as well. The difference to other jurisdictions is however that negative interest rates have become so pronounced, that it is by now worth it to simply withdraw one’s cash and put it into an insured vault.

Having realized this, said pension fund manager, after calculating that he would save at least 25,000 CHF per year on ever CHF 10 m. deposit by putting the cash into a vault, told his bank that he was about to make a rather big withdrawal very soon. After all, as a pension fund manager he has a fiduciary duty to his clients, and if he can save money based on a technicality, he has to do it.

What happened next is truly stunning. Surely everybody is aware that Switzerland regularly makes it to the top three on the list of countries with the highest degree of economic freedom. At the same time, it has a central bank whose board members are wedded to Keynesian nostrums similar to those of other central banks. This is no wonder, as nowadays, economists are trained in an academic environment that is dripping with the most vicious statism imaginable. As a result, withdrawing one’s cash is evidently regarded as “interference with the SNB’s monetary policy goals”. Thus SRF reports:

“Since the national bank has introduced negative interest rates, pension funds in the country are in trouble. Banks are passing the negative rates on to them. This results in the saved pension money shrinking, instead of producing a return. A number of pension funds are therefore thinking about keeping their money in an external vault instead of leaving it in bank accounts.

One fund manager showed that for every CHF 10 m. in pension money, his fund would save CHF 25,000 – in spite of the costs involved in vault rent, cash transportation and other expenses.

However, as our research team has found out, there is one bank that refuses to pay out money in such large amounts. The editorial team has gotten hold of a letter from a large Swiss bank in which it tells its customer, a pension fund:

“We are sorry, that within the time period specified, no solution corresponding to your expectations could be found.

Bank expert Hans Geiger says that this “is most definitely not legal”. The pension fund has a sight account, and has the contractual right to dispose of its money on demand.
The entire article can be read here.

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