The recent World Economic Forum’s Global Competitiveness Report, which ranks countries’ factors as varied as education, health, and labor efficiency, technological readiness and innovation, positioned the United States in fifth place.
For the past three years, the United States has been dropping in rankings whereas one of the world’s smallest countries – Switzerland – has held the top place.
In the last year, the Swiss franc has appreciated against all major currencies and has been chosen as a safe haven, like gold, during these turbulent times.
With a very low level of unemployment and huge foreign currency and gold reserves, many investors and traders opted to buy this currency.
The Swiss franc has rallied as much as 40 percent against the U.S. dollar and 30 percent against the euro. This rally has hurt not only the tourist economy but also the exporters in chemical pharmaceuticals and watches.
The Swiss National Bank (SNB) has come under heavy criticism by industrialists and politicians for not doing enough to protect the economy, which was at risk of falling off a cliff into recession. A previous attempt to defend the Swiss franc wasn’t successful, resulting in heavy losses to the SNB.
The most recent plan by the government to create a fund of about one billion francs ($1.12 billion) to help exporters who have been hit by the strong franc was criticized by the Swiss People’s Party (SVP).
Under the plan, exporters would be able cover their risks on orders from private companies. This policy was perceived as an attempt to preserve jobs and Switzerland’s competitiveness.
Christopher Blocher, a leading figure in the right wing Swiss People’s Party, was initially opposed to subsidizing industries that couldn’t cope with a strong franc but suddenly changed his mind to support the Swiss franc.
The Swiss National Bank implemented an unconventional policy which it declared shortly after having slashed interest rates to zero.
The SNB then came out with a nuclear weapon which successfully attacked international currency traders parking their money in Swiss francs. The declaration that it would unilaterally set a cap on the franc’s exchange rate against the euro and wouldn’t tolerate the euro trading below 1.20 franc to the euro. This resulted in an unprecedented substantial weakness in the Swiss franc – in three minutes, speculators lost between 8 percent to 9 percent of their trade.
At the same time, Swiss exporters such as Nestle, Swatch, Roche, Novartis and Richemont rallied.
President Barack Obama should learn from Swiss politicians that decided that when their economy is in danger of falling off the cliff they would look at unconventional ways to help their businesses and guarantee near full employment.
Obama should look at ways to help American businesses and make them more competitive globally by reducing corporate taxes which are the second highest in the Western economy.
Like Swiss politicians who took risky decisions and didn’t only think about their re-election by declaring they would defend the franc at all costs, they maybe have inflationary risks but at least they guarantee jobs and help exporters.
Although it is risky to invest in the Swiss currency, one should look at companies that will benefit from their courageous politicians that support them by having low taxes and now a weaker currency. Instead of investing in the ETF that mimics the SMI (Swiss market index) and is composed of not only industrial companies but also financials, I would look at Swatch, Roche and Novartis, Nestlé and Richemont.
All these companies will benefit from a weaker currency and from a government that understands the needs of a business to succeed in competitive global economy.
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