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Forfatterens bildeThomas Lindseth

Why Switzerland have no inflation

As a result of the huge public spending packages and extensive monetary expansion carried out after the coronavirus economic crisis, the vast majority of Western countries landed in 2022 with some of the highest inflation rates recorded in the entire century.


We are talking about the fact that, in December 2021, for example, year-on-year inflation in places like Spain or the United States exceeded the 7.5% barrier.

And all this, of course, without taking into account that from February 2022 the war in Ukraine was going to put greater pressure on prices.

However, what if I told you that there was one country that is getting out of this whole inflation crisis?

What if I told you that there is a place where inflation has been completely unknown for more than ten years?



As you can see in this chart, the Swiss Confederation seems to play in another league as far as inflation is concerned.

With price increases up to five times lower than their Western neighbors, it is almost as if the Swiss live on another planet.

Although, yes, I know what many of you are thinking:

This graph shows that in 2021, Switzerland had an inflation rate of 1.6%.

And, although this is a very low rate... Can we really say that there is no inflation in Switzerland?

Well, let me tell you that, in reality, this 1.6% inflation figure is a complete exception for the Swiss country.


Since 2009, inflation in Switzerland has been negative for 70% of the years. And that is not all. As you can see, when positive inflation levels have been recorded, they have never exceeded 1%.

Translating this into technical language, we could say that Switzerland is a country accustomed to deflation. That is, prices fall across the board year after year.

The question is, why does this phenomenon occur?

Why on earth is there no inflation in Switzerland? Does its central bank, unlike the rest of the world, not print any money at all?

Well, hold on to your chair, because here comes

the most interesting part... not only is new money being printed all the time in Switzerland, but also it is being printed at a crazy rate.


To give you an idea, over the last ten years alone, the Swiss central bank has increased the volume of francs in circulation by a factor of four.

This is a huge increase in the money supply, as a comparison, was almost 60% higher than that of the European Central Bank during the same period of time.

So, when people tell you that printing money inevitably causes inflation, you know that the Swiss example shows that this is not always the case.

In any event, and keeping all this in mind, a few questions come up:

How on earth does Switzerland manage to avoid inflation? What does this country have that others don't have besides low taxes and the best watches in the world?

Is Swiss deflation really a better option than the moderate inflation levels pursued by the other countries?


Today, we will answer all these questions!




Have you ever wondered how exactly a central bank works?

As many of you already know, the central bank of a country is the body

in charge of creating new money, regulating interest rates, and controlling inflation, but:

What is the step-by-step mechanism that allows them to do all this work?

How does the central bank introduce new money into the system in order to control inflation?

Well, the answer is first to understand a somewhat surprising concept, and that is that central banks work almost like companies. They have properties, they have savings,

they have debts..... And, what’s more, they may even have profits.

Without going any further, in 2020, the European Central Bank made a net profit of more than €1.6 billion, that’s US$1.68 billion! But wait a minute, because the Swiss case goes much further:

Not only does the Swiss central bank make profits like any other company, but it is

also listed on the stock exchange. And yes, you, yourself, can buy a share and receive part of those profits every year! Well, more or less.

But where do these profits come from? What’s more, what exactly is the business of a central bank that allows it to make money?

Well, the truth is that its name makes it very clear: the central bank...

It is first and foremost a bank, and it earns money through loans and investments.

The question is: To whom does it lend the money? And even more importantly, where on

earth does it get all the money it lends?

Well, you see, on the one hand, central banks can lend money to governments, and on the

other, they can lend it to conventional banks.

Loans, which like any other bank, are granted with interest. Hence the profits.


The curious thing about this whole affair is that the money lent by the central bank is newly

created money, newly printed money, so to speak. So, putting two and two together, the money you have in your portfolio came out of a loan that the central bank made to a bank or to your government, and that sooner or later will have to be paid back, for example, through taxes.

But... Here’s a question! What does what I have just told you have to do with the fact that

there is no inflation in Switzerland?


Hold on because now comes the best part:




Imagine that in a table like this, we write all the accounting movements of the European Central Bank:

In one part, called liabilities, we note the total money created in the European economy, 8.3 trillion Euros, which is US$8.73 trillion. And in the other part, which is called assets, we

write down to whom all that money has been lent.

Specifically, Eurozone governments have been lent €4.7 trillion, while commercial banks have received €2.2 trillion.

However, just a moment, because many of you have probably already noticed something:

if we add up the money from loans granted to banks and governments, we are still 1.4 trillion

euros short of the total amount of money issued.

So the question is, where the hell is that money?

Well, you see, what actually happens is that central banks have a third way to introduce the

money they print into the economy. A third way about which we haven't told you anything yet:

This third way consists of buying assets such as stocks, gold, or even the currencies of other countries. Assets that, let's say, "are kept in a piggy bank".

These savings are what is known as the central bank's reserves, and believe me when I tell you that they are essential for controlling inflation or exchange rates.


If a central bank has very high reserves, of gold for example, when an unexpected period of inflation or falling exchange rates occurs, it can sell the gold reserves in exchange for recovering part of its own currency. By doing so, by repurchasing its currency with gold or other assets, the central bank can reduce the amount of money in circulation, and thus stop the depreciation of its currency.

In other words, having a lot of reserves is an important guarantee that a central bank

will be able to control the supply and demand of its currency, or in other words, to ensure

that its currency has a stable and secure value. But if you want an explanation that is a little

more concrete, let's go with the numbers:

In the case of the European central bank, as we have already seen, these reserves total

about 1.4 trillion euros, that is the eurozone has a total backing of its currency of about 17%.

The question is: Can you guess how much reserve backing the Swiss central bank has?

Well, hold on to your chair because it has no less than 91.5%!


More than 9 out of 10 Swiss francs are backed by gold, by shares of companies such as Amazon, Google, Apple, or by assets of foreign countries.

And if the reserves of the Swiss central bank were divided among the Swiss citizens themselves, each of them would receive more than $114,000.

Now compare this policy with that of the central banks that are dedicated to giving money to the government of the day so that they can spend it on current spending. Which, by the way,

is what the ECB and the Fed itself have been doing for quite some time now.

But let's not get sidetracked. We could say that the Swiss central bank is something like a huge investment fund. And take note, because we are not only talking about the fact that their reserves are extremely high, but also that these reserves continue to grow year after year thanks to the returns obtained on their investments.


Well, thanks to the enormous investments of its central bank, Swiss political institutions and the Swiss economy have two superpowers that are practically unique in the world:

The first is that, as a result of the central bank's profits, the Swiss State, which is the largest shareholder, receives extraordinary financing virtually free of charge each year.

Free money.

The second superpower is that, if you think about it, a currency with so much backing,

security and stability is a perfect investment for all those savers who want to have their money well protected.

In other words, during periods of economic crisis or inflation, the Swiss franc functions practically like gold, that is, as a perfect safeguard for the savings of a large part of the world.

Which, by the way, explains news stories like this:



As you can probably imagine, the fact that the Swiss franc has become an investment commodity has catapulted its value to intergalactic levels.

To give you an idea, while in the year 2000 you could buy as little as 60 dollars with 100 Swiss francs, today, with the same amount of francs, you can buy more than 100 dollars.

The value has almost doubled in just 20 years.

That said... now think about it for a moment...

The more investors want to buy francs, the more their price will rise, and the more their price

rises, the easier it will be for the central bank to buy new reserves and further guarantee its

security by attracting more and more investors.


As a result, the central bank can print more and more francs to exchange them for foreign

currencies, which it then converts to a large extent into shares. And all this without generating inflation.

Yes, indeed, the Swiss franc is a currency in a constant upward spiral.


But wait a minute, we're not done yet! Because even though the strength of its central bank is more than enough to explain Switzerland's zero inflation, there is still a second fundamental aspect that we have not yet addressed.

Can you guess what it is?

I'm sure many of you have heard

that Switzerland is a tax haven.

A country where the rich can take their

money from [somewhat dubious] sources and pay ridiculously low taxes.

Well, guess what?..... Sorry to disappoint you but after several political

scandals, the OECD countries managed to put Switzerland on the ropes for helping money laundering with its banking secrecy.

And the question is: Did they really get rid of it? Well, they did.

Apparently, at least as far as banking secrecy is concerned: no, Switzerland is not a tax haven.

Okay, but what about taxes? We all know that very little tax is indeed paid in Switzerland, but how much tax exactly?

Well... Take a look.



In this graph you can see the percentage that, for example, the Swiss and Spanish governments take for each euro earned by a worker according to his or her income.

At first glance, the difference is abysmal. We are talking about almost 50%.

But, to illustrate it better, let's take a more concrete example:

While in Spain, a person earning about 30,000 euros per year has to pay about 5,103 euros in taxes, in Switzerland that same person would have to pay only about 2,800 euros.

This, of course, without taking into account that the Swiss VAT rate is only 7.7%, the social security contributions paid by the company, which in Spain are among the highest in the world, and the fact that there are no taxes such as capital gains tax.

And yes, I know what you're thinking, what do low taxes have to do with inflation?

In short, with Switzerland's low taxes, companies from all over the world are eager to invest in this country. Not only because they will pay less in taxes, but also and above all because these same low taxes attract highly skilled foreign workers to the country that companies can easily hire.

While in neighboring France only 12.38% of its citizens are foreigners, in Switzerland this figure almost doubles to over 22% of the population.

In short, the demand and value of the Swiss franc, together with its low

inflation, is not only due to the great security offered by its central bank, but is also motivated by the great conditions offered by its economy to new companies.

So, knowing all this, I'm certain, for sure, that you are now wishing that your country,

or at least your central bank, would slowly start to imitate the Swiss model....

Well... hold your horses.... why?...

What if I told you, in reality, the Swiss government does not particularly like this situation very much?

And what if I were to tell you that the Swiss central bank is keen to have higher inflation?

Don't believe me? Well... Judge for yourself!



The Swiss central bank decides to peg its currency to an exchange rate of 1.20 francs to the euro because of the risk of overvaluation for the economy")


What is certain, is that the deflation that Switzerland has experienced

over the last few years does not seem to be something that makes it feel satisfied.

And frankly, there is a good case to be made that continued deflation could be much worse than moderate inflation.

So, at this point, it's your turn: What do you think of the Swiss central bank's model?

Do you think it is the most significant reason for the franc's zero inflation? Or maybe you think the key lies in the competitiveness of its taxes?


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