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What is good money?

Swiss National Bank Chairman Thomas Jordan rejects new demands on monetary policy.

Beat Gygi
Die Weltwoche

What makes good money? Thomas Jordan recently had some explosive words to say on this question, which goes to the heart of the economic nervous system and is more burning and controversial today than ever before. At an event organized by the Progress Foundation, the Chairman of the Governing Board of the Swiss National Bank (SNB) began by explaining that good money is a fragile achievement and therefore fundamentally always at risk, and that in recent years there has been a considerable increase in concern in broad circles “that our good money could go bad”.

But he immediately adds that “the value of money has never been as stable as in the last twenty years”. Are we hearing correctly? According to Jordan, money is good when it is widely accepted as a medium of exchange and is suitable as a unit of account as well as a store of value, contributing to the preservation of the real value of financial claims. How does he prove this recently extraordinarily high stability of value of the Swiss franc? With the national consumer price index. This has risen little, he says, and consumers’ purchasing power has remained high.

And what does he say to all the criticism of the extremely loose monetary policy of the leading central banks, including the SNB, to the accusations that they are manipulating the economy with their purchases of securities and zero interest rates, taking the markets off course? Jordan doesn’t mention it. An important part of his job as Chairman is to protect the SNB from this. With unwavering persistence, he maintains that the key indicator of success is the consumer price index, in accordance with the mandate for price stability, and that we are on course. He also believes in the independence of the central bank. His matter-of-fact manner of expression and his tall physique help him to suppress certain topics during appearances and discussions.

But the attacks on the SNB are intensifying. The flood of money is flowing into real estate, luxury goods, shares, precious metals and art, leading to asset price inflation; many want to hold the SNB responsible for these results too. Savers and pension funds are rebelling against negative interest rates. And the SNB balance sheet, which has swollen to almost one trillion Swiss francs as a result of the exchange rate policy in favor of exporters and is actually a national asset, is arousing the desires of many people. In addition, environmental interest groups want to impose sustainability regulations on the SNB’s investments, and recently there have been “genderist” jibes against its personnel policy. And Jordan? It suits his temperament that he warns against rash interventions in a historically established order.

Ruag whirled through

The armaments group Ruag is feeling the full force of the coronavirus crisis, as production and services for private customers in the aviation industry have collapsed. At the beginning of the week, Ruag International announced 150 job cuts. According to the information provided, the pre-crisis level in aviation is unlikely to be reached again until 2024/25 at the earliest. A far-reaching transformation is unavoidable. This is not surprising for an industrial company, but Ruag is a special case. At the beginning of 2020, the former armaments group Ruag was split into a Swiss federal company and a market-oriented international part.

The old Ruag had previously supplied both the Swiss army and private customers as a civil-military combination for a good twenty years. There were then strong suspicions that the army was being overcharged in order to subsidize the civilian part. This led to the unbundling, which was intended to investigate the suspicions. Now the coronavirus crisis is causing so much confusion that there is an increased likelihood that previous mistakes will not come to light.

Saving motivation

The recent crisis has once again shown how effective automatic stabilizers on the labour market can be in cushioning overly sharp downturns. Unemployment insurance and short-time working allow employees to be temporarily laid off without losing their morale and income, thus keeping consumption going. This is organized by the state, but there are similar ideas in the private sector. “I’m without a job, but I know it’s because of coronavirus, not because of my performance,” says the unemployed man. With this perspective, he takes much more motivation with him into the job search than if he were to attribute the job loss to himself personally and had to make a kind of write-off in his self-assessment.

Translated in DeepL