Thomas Steinemann: «What Use Is It Keeping the Franc?»

A monetary policy of sustained negative rates may eventually lead to social unrest, said Thomas Steinemann, the investment chief at Bellerive private bank in an interview with finews.tv. He urged the Swiss central bank to dare an experiment.

Almost all observers expect the European Central Bank (ECB) to cut rates on Thursday. The question that Swiss economists are asking is how the Swiss National Bank (SNB) will react to such a move.

Thomas Steinemann, head of investments at Bellerive private bank, has his doubts about Swiss monetary policy in general. There is more and more evidence suggesting that higher rates may not necessarily lead to an appreciation of the Swiss franc, he said in an interview with finews.tv (interview in German language).

Steinemann is convinced that the strength of the franc isn’t due to the difference in interest rates but to the safe haven effect. He added that the dollar didn’t appreciate despite the fact that the Fed had increased rates eight time over the past three years.

Steinemann questioned the independence of Swiss monetary policy and asked what use it was to keep the Swiss franc under these circumstances. Opening the monetary floodgates only because the ECB had done so put the very purpose of an independent currency in question. The expert urged the central bank to dare an experiment instead and to move rates back into positive territory.

Social Unrest as a Consequence of Monetary Policy?

In theory, the SNB can cut rates as far as it likes in numeric terms. But it will reach its limits eventually, Steinemann said, because negative rates affect the financing of social insurance systems. Once people start realizing that monetary policy comes at a price, the potential for social unrest increases.

Another potential area of trouble is the property market. Monetary policy traditionally has a strong influence over real estate costs and a surge in interest rates may cause havoc.

Still, Steinemann is quite optimistic about the general economic condition of Switzerland. He said that the somber macro-economic picture that monetary policy would suggest we currently are seeing, contrasted heavily with the dynamic entrepreneurial world he witnessed and that kindled his spirits.