For nearly 8 years, Switzerland battled its own economic success.
The CHF — a global safe-haven currency — kept rising, threatening exports and choking growth.
The SNB’s weapon of choice?
Negative interest rates!
In 2015, the SNB pushed rates below zero. Their goal was simple: weaken the franc by adding a holding cost to it. But about 8 years later, by Sep 2022, the results were clear:
1) The CHF kept rising. Investors still flocked to CHF as a safe asset, undeterred by negative yields.
2) Listed private banks like Credit Suisse bolted on more risk, doubling down on investment banking to shore up fee income.
3) Pension funds suffered. Retirees watched their bonds pay nothing.
It was clear.
Negative rates had failed to weaken the CHF.
Now, there is a sense of deja vu after the SNB cut rates to zero last week raising the spectre — once again — of negative rates.
Can the SNB use a different playbook this time around? Something that’s less distortive?
A Citizen’s Dividend is potentially an idea whose time has come
Today, Switzerland has a chance to reset by turning its massive current account surplus and reserves into a dividend for every citizen.
Why this could work:
1️⃣ Avoids distortions
Banks can keep somewhat healthy margins. Pension funds eke out mild real returns.
2️⃣ CHF weakness
Put money in people’s hands, and they will (hopefully) spend it — boosting imports, shrinking the trade surplus, and easing CHF pressure without a blunt tool like negative rates.
3️⃣ A fair deal for citizens
The surplus exists because of Swiss labour and innovation so why shouldn’t there be a dividend?
A counter point to 3️⃣ could be the results of a past referendum:
In 2016, Switzerland held the world’s first referendum on Unconditional Basic Income (UBI).
The result?
A 76.9% rejection!
Now, while you could surmise that NOBODY* actually rejects free money: the Swiss did just that!
(*You don’t have to look beyond the Americans; their government sent them Federal Cheques in 2020, which a whole lot of them promptly used to sharpen their day-trading skills 😀):
The Swiss said NO to what they perceived to be Free Money.
Why?
IMO, the UBI proposal may not have been communicated well (recall it was the Brexit year, also Gen AI hadn’t happened yet), resulting in the Swiss work ethic clashing with the perception of ‘money for nothing’.
For the Swiss perhaps, the alarm bells against developing a ‘subsidy mindset’ rang out loud and clear.
Could it have been introduced instead as the Norway Model?
If implemented this time, here is the rough-and-ready math:
1️⃣ Allocate 1-2% of the SNB’s $1 trillion foreign reserves ($10-20B/year)
2️⃣ Redirect 5-10% of annual trade surpluses (CHF 100B+ → CHF 5-10B/year)
3️⃣ With a population of 8.7 M → ~ CHF 3,000 / year / citizen
Switzerland’s choices now?
Repeat the failed model of 2015 or pioneer a new one.
One that shows a Swiss Knife-kind of versatility.
