Switzerland's central bank is holding interest rates in negative territory. Are we rich enough to afford the luxury of destroying our savings to glorify an ideology rooted in the past, Jean Keller asks in an essay for finews.first.


This article is published on finews.first, a forum for authors specialized in economic and financial topics.


At the risk of stating the obvious, it needs to be observed that the expansive monetary policies pursued over the past ten years have taken us up a blind alley. Because while Quantitative Easing has certainly helped to save Europe from economic disaster, we must admit that we have reached the limits of the model and that it is urgent to find other economic-policy tools in order to revive sluggish consumption on the Old Continent.

In this environment, the problem of negative interest rates surfaced again this summer and the recent central bankers’ meeting at Jackson Hole brought monetary issues back to the forefront. More and more voices are being raised to expose the shortcomings of an extremely accommodative monetary policy as the only tool used to avoid Japanization of our economies, that is, a prolonged period of stagnation and deflation.

This is all the more so in Switzerland because our country suffers from the safe-haven effect of the Swiss franc, which causes our currency to appreciate and compels the Swiss National Bank (SNB) to redouble its efforts to weaken it and give our asphyxiated exports a breather.

«This cheap money has thus not benefited the broadest segments of the population»

Several aspects of the debate are surprising and deserve closer examination. First of all, it should be emphasized that the astronomical amounts of liquidity that were injected into the banking system have not triggered a real recovery, which should normally have happened as a result of the easing of monetary conditions. Indeed, the theory holds that the influx of liquidity into banks favors lending and thus stimulates investment demand via lower interest rates.

However, the truth is that, since 2011, liquidity has tended to remain in the financial system and has thus not succeeded in boosting investment and therefore in getting us out of stagnation. Instead, this influx of money has in fact supported demand for financial assets, favoring the richest people, who are the only ones who can afford to invest their money. This cheap money has thus not benefited the broadest segments of the population, thus widening inequalities and serving as a breeding ground for populism.

«Banks are very ill-equipped to lend to a service economy»

The reason for this state of affairs stems from a significant change in the structure of our economies. At a time when major industrial successes such as Facebook, Google or other famous unicorns no longer require large capital investments, the role of bank lending has become partially secondary in a knowledge- and skills-based economy.

In addition, banks are very ill-equipped to lend to a service economy, for which it is more difficult to secure loans against a physical pledge such as a machine or factory. In addition, draconian risk regulations have significantly reduced the ability of banking institutions to lend to the economy. In fact, the current capital ratio rules have really put a brake on the transmission of monetary policy from central banks to the real economy.

It, therefore, seems quite normal that many voices are currently being raised to ask for a review of the various aspects of our economic policies. The first avenue is obviously to call into question our aversion to any form of fiscal stimulus. It should be pointed out here that the austerity demanded so vociferously by conservative voices has not been the panacea announced, even if it did serve as retribution for an ultra-liberal fringe of the economy who were pleased to wring the neck of social democracy.

«The most serious consequence has been the destruction of collective savings through negative interest rates»

True, some countries such as Spain and Portugal have succeeded in restructuring their economies, at the cost of enormous sacrifices made by the weakest sections of the population. But the result has been deep political disillusionment, the price of which we have not yet finished paying.

But the most serious consequence has been the destruction of collective savings through negative interest rates and inadequate consideration given to risk in the bond markets. We need to recall that the Swiss Confederation (but the same applies to other European countries) can today borrow at negative interest rates over a duration of almost 50 years. To get an idea of the absurdity of this situation, it must be realized that this means an investor - and therefore the man in the street through his pension fund - is today paying 216 francs for a Swiss Confederation bond that will only be repaid at 100 francs in 2045!

So why not exploit this market inefficiency to borrow massively and invest in the energy transition or training? What is the point of posting annual budget surpluses with the regularity of a (Swiss) clock when the money is offered to us by the irrational consequences of an off-course monetary policy? Are we so rich that we can afford to destroy our savings in order to preserve an ideology from an age gone by?

«We’re ideally positioned to experiment»

Finally, is it not time to turn to other monetary-policy tools that have not yet been used? For example, before taking office, former Federal Reserve Chairman Ben Bernanke had made his reputation with a famous article on «helicopter money», which consists of distributing money directly to consumers. Yet while we have clearly reached a time of questioning, no central bank is talking about changing course and we are once again heading for an across-the-board decrease in interest rates around the world.

Albert Einstein is often quoted as having said that the proof of insanity is doing the same thing over and over again and expecting different results. While the most urgent problem for our economy is clearly the destruction of our savings through across-the-board negative interest rates, as well as the strength of our currency, is it not time to have the courage to experiment with other methods which exist and which more and more economists are calling for?

To those who say we should not play at sorcerer’s apprentices, let’s remember that with our enormous credibility surplus, we’re ideally positioned to experiment with new and slightly more original approaches.


Jean Keller joined Quaero Capital in 2011 as CEO and Partner. Previously, he was CEO of 3A (Alternative Asset Advisors), an alternative investment division of the Swiss banking group Syz. Prior to joining Syz, Keller spent eleven years in various roles within the Lombard Odier Darier Hentsch (LODH) Group in Geneva, New York, and London, where his father was a partner. From 2002 to 2004, he was CEO of LODH Asset Management in London and a member of the Group Executive Committee. He also managed LODH's institutional asset management and was a member of the Asset Management Board. His brother is Hubert Keller, a partner at Lombard Odier.


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