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Deflation in Swiss francs

Posted by John Reed on

For five years, I have been buying and advocating buying Swiss francs (CHF) as a hedge against possible U.S. dollar (USD) hyperinflation. Furthermore, I urged you to hold them not in bank accounts as I hold AUD, CAD, and NZD, but in cash in a Canadian safe deposit box.

You don’t want to hold cash generally for two reasons: it can only be withdrawn, deposited, or moved in person. And if the currency in question is inflating, it loses purchases power, although interest on the account can ameliorate that or even turn a real profit if it is greater than the inflation rate.

But the opposite is true if the currency in question is deflating and if the country in question makes it hard or impossible for Americans to have bank accounts there or charges negative interest to hold money in an account.

That describes Switzerland according to a 10/19/15 article in the Wall Street Journal—also Denmark, another country whose cash I hold and that I recommend you hold.

CHF inflation has generally been negative or zero since 2009. Their deflation in September was the highest in 50 years—an annual inflation rate of minus 1.4%. Some deposit accounts there charge a minus .75% interest rate.

The Swiss francs I bought in 2012 now will buy me more goods and services in Switzerland than they would when I bought them.

The point of the Journal article is that deflation is not as bad as most economists thought. Switzerland is one of the most squared-away economies in the world with a 3.4% unemployment rate (they have no minimum wage).

I picked my six currencies mainly for their low national debt to GDP ratio. Here are their current debt-to-GDP rations and most recent inflation rates, and those of the USD—all from Trading Economics:

 Currency Debt-to-GDP ratio Inflation Rate
AUD 33.88% 1.5%
CAD 86.51% 1.3%
CHF 34.2% -1.4%
DKK 45.2% .5%
NZD 30.43% .4%
SEK 43.9% .1%
USD 103.0% .2%

So my recommendations are unchanged. Get savings accounts in AUD (Australia), CAD (Canada), and NZD (New Zealand) in those countries and cash CHF, DKK (Denmark), and SEK (Sweden) which you hold in Canada, not the U.S.

The amount you should have is not a percentage of your net worth, rather, it is the amount you would need to take refuge abroad for 6 to 24 months. That would be the same amount for everyone other than how high off the hog you want to live and can afford. 6 to 24 months is the length of time I figure it will take the US government to stop trying to deal with high inflation with make-it-worse measures like price controls and capital controls. You will probably need to leave the country during that time to avoid the hardships that the combination of price controls, capital controls, and high inflation will cause, like empty store shelves.

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