Economy: Why The Swiss Central Bank Did The Right Thing

(Drivebycuriosity) - Better late than never. Last week the Swiss Central Bank ditched the pegging of the Swiss franc to the euro. They cancelled the cap of the franc which prohibited that the euro falls deeper than 1.20 franc. This limit glued the Swiss currency to the euro which is tumbling because of the weak European economies and severe political problems in Greece, Italy, Spain and France. Since last week the Swiss franc is allowed to float freely on the currency markets. After the decision the franc jumped more than 20% against the euro and other currencies (bloomberg).

I think the Swiss monetary authority did the right thing. The pegging of the franc to the euro was utter nonsense. The sound franc has not much in common with the ailing euro. The Swiss currency represents a healthy economy, but thanks to the pegging it was trapped in the maelstrom of the European Monetary Union caused. The euro, which was introduced 1999, is a political construct and backed by the bureaucracy of the European Monetary Union. It is suffering because of the centrifugal forces from very unequal European countries (Germany/Netherlands versus Greece, Italy and others) which are fast drifting apart. So the Swiss had to pull the release cord.

Now the market will decide what the franc is really worth. It is not surprising that Paul Krugman, Brad DeLong and other left-wing economist cry foul and dismiss the Swiss decision (marginalrevolution). Krugman & Co. don´t understand market economy.  They dislike of freedom. Left-wing economists believe in government power and they want more control and bureaucracy. The don´t appreciate that Switzerland doesn´t want to be chained to Europe and its sick currency.  If they would be right the Euro, which glues countries together which have little in common, would have no problems at all.