snaz01s ‘Switzerland OF Too- NYTimes.com
The New York Eimes
The Opinion Pages
Switzerland: QE Too
January 18, 2015 7:26 pm
OK, arrived in Hong Kong, and IT is working a lot better. So let me weigh
in a bit more on the Swiss miss. Basically, my take is the same as Brad
DeLong’s: what we have here is a central bank that let itself be bullied by the
balance sheet bugaboo brigade.
‘The way to think about the frane peg, I'd argue, is to view currency
intervention as essentially a form of quantitative easing. What we mean by QE
is open-market operations in which the central bank buys stuff other than the
usual purchases of short-term government debt. This could be long-term
assets, it could be private-sector debt, or it could be foreign securities.
Obviously the channels of influence depend to some extent on which route you
choose, although remember that the Fed was accused of waging currency war
when it was only purchasing domestic assets, and the main clear effect of
Abenomics so far has run through the exchange rate. But the main point is to
think of any kind of non-Treasury-bill open market operation as a form of QE.
‘This in turn helps us put the explicit exchange rate target into the right
slot: it was about making QE effective through commitment, so that you got
the maximum impact on expectations. Actually, the success of the currency
program suggests that other central banks might want to try things like setting
a ceiling on some long-term interest rate.
But back to Switzerland: they had a policy that was working, so why did
they stop? And the answer, Brad and I both suspect, is that the SNB, like the
Fed, faced constant pressure from finance types saying “Your balance sheet is
tntpkrugman bigs nytimes.com/2015101/186witzectand.gp-toar_r=0 12snaz01s
‘Switzerland: QE Too - NYTimes.com
too big! Debasement! Inflation! Unnatural monetary acts! Francisco
d’Anconia!” But unlike the Fed, the SNB lacked the intellectual self-confidence
(and perhaps the institutional strength, seeing as how it’s partially privately
owned) to stand up to that pressure.
‘The irony is that having been bullied into worrying about its own
profitability, which is not what central banks should do, the SNB ended up
imposing huge losses on itself. But that’s neither here nor there for Swiss
national interests. The main thing is that the credibility essential to getting
traction at the zero lower bound has been dissipated for Switzerland, and
damaged for everyone else.
2015 The New York Times Company
hitprugman blogs nybmes.con/201S0V18/switzetand.qeton"?_=0
22