Former BIS Chief Economist: "The System Is Dangerously Unanchored; It Is Every Man For Himself"

Tyler Durden's picture

From Mark Dittli and Alexander Trentin of Finanz und Wirtschaft

"The monetary system is dangerously unanchored"

William R. White, the former chief economist of the Bank for International Settlements, is worried about extreme monetary policies worldwide. The Swiss National Bank, by introducing negative interest rates, is trying to cope with these currents.   

In its quest to stop an appreciation of the Franc, the Swiss National Bank (SNB) introduced negative interest rates on Thursday. According to William White, former chief economist of the Bank for International Settlements in Basel, the SNB acts in an international monetary «non-system», where every country only looks out for itself. In his opinion there could be a counterintuitive effect of negative interest rates: To cover their losses, banks could increase the costs of loans.

Mr White, the Swiss National Bank has introduced negative interest rates. What do you think of this measure?

It is one more step along the same path that the SNB has followed for years. There has been an increase of inflows of capital into the Swiss Franc, because of all kinds of trouble around the world. Furthermore, I suspect the SNB expects more trouble along the road, which is the possibility when the European Central Bank introduces a strategy of quantitative easing some time next year. The SNB tries to convince the banks not to channel more capital into the Franc, and to get banks who have long-term positions in Swiss Francs to start reversing them. This is directed to lower the value of the Swiss Franc or at least to take the pressure off the currency.

Will negative interests turn out to be an effective measure to reduce the upward pressure on the Swiss Franc?

Who knows? It did have this kind of impact in the case of the Euro, when the ECB introduced a form of negative interest rates in summer. It might have the impact here as well. But the honest truth is: The particular transmission mechanism is less important than the signal the SNB is sending to the markets: We will do whatever it takes in order to keep the currency at its current level. The SNB has introduced various measures before, and now we are one step further down the road. The hope is that those who say the Swiss Franc will get stronger say: The SNB will do whatever it takes, I leave them alone. This strategy has been successful until now.

But if signaling is so important, does it mean that negative interest rates are merely a symbolic step?

A negative yield has more than a symbolic effect. But we do not know how big that effect will be. In addition, there is the signal to the traders that there are no gains, only losses in holding long positions in the Swiss Franc.

What if the capital inflows into Switzerland continue? What further measures could the SNB use?

If you had gone to –0.25%, you could go to –1%, –2%, and further. The second thing is that currently the charges only apply to reserve holdings above a certain size. This level could be lowered. If inflows just keep coming, the SNB could step up its interventions even more.

Are capital controls a feasible measure?

It is very hard to imagine that for a country like Switzerland. The country has a huge current account surplus and a huge portfolio of assets abroad. But having said that, capital controls are more widely used in emerging market countries today. Even the International Monetary Fund said in 2012 that, if you have done everything else, capital controls are ok. They do not call it capital controls though, but somewhat euphemistically capital flow management.

Will the rate cut of the SNB lower the domestic interest rate level in Switzerland even further?

Maybe yes, maybe no. One argument is, if you lower the rate set by the central bank, then all the other rates will follow. My reaction is: Not so fast, my friend! The Swiss banks are now suffering losses on their reserves at the SNB. Banks could reduce interest rates on deposits to recoup these losses. But this has clear limits: People do not have to hold money at banks, they can ask for their money in notes. The banks could also recoup their losses in a different way, and this is something to be concerned about: They could raise the rates on loans. Far from encouraging lending and spending, negative interest rates at the central bank might work in the opposite direction.

So negative interest rates could actually increase the cost of borrowing?

When interest rates cannot go lower anymore, when they hit the Zero Lower Bound, monetary policy might work like quantum mechanics. Take this simple example from the world of physics: Classical Newtonian mechanics only work when the mass of a body is big enough. When the mass is too small, you are in quantum mechanics. These are completely different ways of looking at the world. The Zero Lower Bound might be the quantum mechanics of monetary policy. Things just do not operate in the same fashion. If you think things do operate the same way, you might make a very dangerous mistake.

But will Swiss banks really increase loan rates now?

I do not know. The banks might swallow the losses for some time. They may decide, as the SNB likes them to, to put their money in some other currency in which they do get a positive return.

By holding a one-sided peg of the Franc to the Euro, the SNB has in effect linked its monetary policy to the ECB. How will the SNB ever be able to decouple from the ECB?

The hope is that at some time the pressure on the Franc will come off, when interest rates rise elsewhere. Then the SNB could gradually reduce their exposure to the Euro. That may be a while.

Do you have an idea who will win or lose from negative interest rates?

The banks will lose as they have to pay rates on their excess reserves they hold at the central bank. The public sector, the SNB, will gain. If the banks do not push down deposit rates, but increase the loan rates, the borrowers will pay the price. And when interest rates go down, savers will suffer.

The SNB has to follow the ECB in its monetary policy. Is it not dangerous when the monetary policy of one country affects another?

Currently we have an international monetary non-system. Nobody has to follow any rules. Everybody does what they consider is in their own short-term best interest. The real difficulty is: What is in their short-term interest – for example, following ultra-easy monetary policy – could well backfire somewhere. It might be not in their long-term best interest. And as the easy monetary policy influences the exchange rates, it influences other countries. Almost every country in the world is in easing mode, following the Fed, and we have absolutely no idea how it will end up. We are in absolutely uncharted territory here. This worries me the most. The SNB has been doing well in what it was forced to do by this international monetary non-system. The Swiss have to do the best they can, because that is what everybody else is doing.

What are the risks of this non-system?

There is no automatic adjustment of current account deficits and surpluses, they can get totally out of hand. There are effects from big countries to little ones, like Switzerland. The system is dangerously unanchored. It is every man for himself. And we do not know what the long-term consequences of this will be. And if countries get in serious trouble, think of the Russians at the moment, there is nobody at the center of the system who has the responsibility of providing liquidity to people who desperately need it. If we have a number of small countries or one big country which run into trouble, the resources of the International Monetary Fund to deal with this are very limited. The idea that all countries act in their own individual interest, that you just let the exchange rate float and the whole system will be fine: This all is a dangerous illusion.

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Murf_DaSurf's picture



Wow, the Professor just figured that out, huh? He must have Tenure......

db51's picture

Former BIS (Bullshit Information Specialist) ....Fucking Assclown.  Never trust anyone with former in front of their name.  What a Dick.


Then I got to the "Who will lose question"


The banks will lose   lmfao.   

knukles's picture

So, you mean to tell me that you wouldn't trust Whateverthefuckhisnameisnow, the musician formerly known as Prince?
See, see, see, principles can be difficult to live with when applied stringently as they should


not believe in Prince.... what's this world coming to?

knukles's picture

What does he mean that if a buncha folks get into trouble, there's not enough liquidity?
The Central Banks have printed an unprecedented amount of money over the last 10 years.  No liquidity?
Who's trying to kid whom?

This is a set up.
Need more central authority, printing ability, control, etc., because shit happens and we all die anyhow argument.

Bullshit  The hidden agenda is clear as a bell.  The reason for the waring is right, but y'all know the drill.  Fear porn.
What he really means to say is... What if some country gets Insolvent?  That nobody will loan them money.  That's not Liquidity, and as a economics prof, he should know the difference.
But then again, he was the economist for an IMF/BIS/WorldBunk type organization that for the life of me, I cannot figure out what they do from anything of a constructive perspective.
Nor has anybody in a position of authority managed to explain it, either!  FFS!

Baldrick's picture

makes one wonder if the bis is thinking of pushing the imf off of the stage.

Crawdaddy's picture

I cannot figure out what they do from anything of a constructive perspective.
Nor has anybody in a position of authority managed to explain it, either!

And no explanation will be forthcoming because they are the capstone of the scum pile. A skeptical mofo may surmise those BIS dudes are positioned to be the world bank for what comes next. Every bank in the US and EU reports to them today. They are the piper calling the tune. They are the giant bitcoin wallet in the sky, for the entire world. They are on a mission to get the straglers under their wing. Heres to hoping the straglers outrun them, giving us time to get out from under them ourselves.

WillyGroper's picture


couldn't be geoengineering, could it?

noben's picture
noben (not verified) Dec 19, 2014 5:54 PM

Waiting for Kirk or Scotty to comment on Dilithium Crystals blowing.

Hey, who popped a cork early?

bbq on whitehouse lawn's picture

He built this system and now he wants to cry about it. Not only that he wants a One world currency to supply free money to all banks.
Call Yellen and go cry some more.

jerry_theking_lawler's picture

Please, you had it right to start with....its not 'free money' its only currency.

Tinky's picture

Yet another person suffering from YDFS* syndrome. Could be an epidemic.

*You Don't Fucking Say

max2205's picture

We need a fucking cuss jar.... oopps

Spungo's picture

I like his quantum analogy. That seems to be true with a lot of things. Individually, most people are pretty good. In large crowds, people turn cunty. It's like magic.

NotApplicable's picture

I like the way he talks of negative rates in one sentence, then brings up the zero lower bound in the next.

Magic, indeed!

seek's picture

Gold is a fine anchor for monetary systems. They should try it sometime.

AUD's picture

Try only. Nothing comes close to the constant quality, so value, of gold.

It wasn't called the gold standard for nothing.

RSDallas's picture

Has he been talking to Madona?

knukles's picture

Has he been talking to Madonna?  Does the Pope shit little red pellets in the woods?

americanreality's picture

I wish you would post less.  Or at least change your avatar.  It makes me want to punch you in the neck.  Hi.  I'M KNUKLES.  I try too hard to make clever comments and I don't know when to quit. 

WTFUD's picture

Duh , things can get out of hand!!!! $100's of trillions slushing around in/up every crack hole. Thank god we have folks to tell us 'things can get out of hand. 's/c

Yen Cross's picture

 Bank of Illusional Settlements

trulz4lulz's picture

There's no such thing as 101%, bitchez!

DOGGONE's picture

Does anyone know why these histories are out of sight?

One And Only's picture

"The system is dangerously unanchoredIt is every man for himselfAnd we do not know what the long-term consequences of this will be."

Yes we do know what it looks like. It looks like a buy order for $200 million SPY's 1 minute before the close at the high of the day every day until there is prosperity. 

It's like this. You know how when you short there is unlimited risk because the upside potential is infinity? If you didn't know that, that's your pro-tip for the day. Anyway, this is the same situation with interest rates. Sure, adjusted for inflation interest rates are negative across the developed world. But this is a race to the abyss so if you're 'expecting' interest rates to go up the central banks may just try to bring them even negative-er-er for infinity. 

Next year we'll be at DOW 34k and interest rates will be -5%. Who knows. When we bail out Spain next time (or whoever) we may also have to provide THEM with a toaster or spider man towel. Personal savings accounts may not exist. I don't see the reason for a savings account yielding .09% when oil can plunge 50% and Exxon is at $90 paying a 2% dividend.

buzzsaw99's picture

just another maggot planning for the next bailout

kchrisc's picture

The new era is upon us: The era of possession.

"If you don't got it, you don't have it."

Gold without possession is nothing.

Rights without weapons are nothing.

The banksters need to repay us.


"The farther you can shoot, the farther your rights carry."

sleigher's picture

"The farther you can shoot, the farther your rights carry."


That reminds me.  I need to get in an order for another 1000 5.54 and 500 .45. 

disabledvet's picture

Good headline at least.  Perhaps if they asked "have you ever seen a cuurency lose half its value in a day?" and go from there?

The Russian people are sure ACTING like a hyperinflation is imminent.

And wasn't today the day we were suppose to announce the sanctions?  WTF over????

 I mean Putin gonna cook off a nuke here?  Or are we all just gonna head down to Hooters for wings and beer and "call it a day"?

Charming Anarchist's picture

Since you put it that way, I am heading off to Hooters and calling it a day.  I will eat and drink what I find. 

Amish Hacker's picture

If a former BIS Chief Economist is saying this, then we must be the point where Wile E. Coyote realizes that chasing the damn roadrunner wasn't such a good idea after all, and now he has run off the cliff into space, while holding an anvil.

AUD's picture

A negative cash rate tells you that the central bank is bidding above par for whatever 'assets' comprise the very short term 'money' market.

By bidding up prices at the short end, the whole market is supported. How this doesn't inflate the market further, thus strengthening the currency, is beyond me.

bunnyswanson's picture

Every person sitting in a position of decision making in the financial sector should be charged with premeditated murder.

observiate's picture

"nobody at the center..." i'd say that a darn good thing...but i know it's not the decentralized libertarian free market i am pining for....  and when it blows up again they will use it as an excuse, again, to make it more centralized, of course.  but I will not give up the fight!

Jack Burton's picture

Ukraine is a costly thorn in the West's side. Constantly asking for free money, in the tens of billions. Check out the latest from the Brussels Whore House, sometimes called the EU Parliament.

" The budget of the European Union is incapable of allocating €2 billion for Ukraine upon an earlier request from ??? Kiev authorities, Jean-Claude Juncker, the president of the European Commission, said on Wednesday."

You heard it. No EU money for Ukraine! What? After  they held a Euro Maidan? WHere is their money, they held the fascist coup in Kiev Washington ordered. So, then, Where is Kiev's money?"

Obviously the EU economy just lost it's large Russian customer, as with a lower Rubel, imports from the EU are now for the 1% and the 99% in Russia must spend rubels only on domestic products, which business there is scrambling to expand, hire workers and fill this vast market hole. A lack of investment capital is slowing this process, the west is trying to limit expansion in Russia. But this is not going to stop the business from expanding when a market waits for their products.

The USA suffers nothing, but it's puppet stooges in the EU Brussels Whore House, their popualtion is losing hundreds of thousands of high paid manufacturing jobs filling the shops and stores of a nation of 150+ million consumers in Russia who were eager to snap up made in the EU products. All this does is open all those markets to Russian business, which in their capitalist system is free to respond. No communist party to go through, the markets are capitalist. More so than in Soviet EU, all must ask permission from the Brussels WHores before doing anything, like creating a job. Pay off Brussels first, then they MAY let you create a job.

Jorgen's picture

"You heard it. No EU money for Ukraine! What? After  they held a Euro Maidan? WHere is their money, they held the fascist coup in Kiev Washington ordered. So, then, Where is Kiev's money?""

No EU money for Bulgaria, either. (My brief comment to that here) So now, the Bulgarian government wants to coöperate with RF on the South Stream pipeline. I don't think Putin will change his mind on this issue unless there is a 'regime change' in Sofia and/or Brussels... /s

Fuku Ben's picture

Another lunatic conspiracy theorist

Someone send out a rendition team and give him lots of hugs and kisses in his new home

That's the new alphabet agency slang for enhanced interrogation in a secret prison. Who says marketing grads don't add value to the planet?

Son of Captain Nemo's picture

The poster child for "off the rocker" is in Washington D.C. planning to shut down the internet this time  because a Korean hacker allegedly took down the internet sites promoting a movie that is bad for war (which is the economy) as cover for a system they helped create that is dangerously unanchored!

How desperate does it look now?!!!

Atomizer's picture

Good, you will be the first bastards to get hooked on the system you sold to the public. Don’t cry when you can’t buy a new Apple I7 phone or pay the house or car insurance. Fucking stooges.


This commie ecosystem is unwinding fast, Janet Yellen is injecting moar money. No one is buying into this ecosystem you’re trying to create.  American Military protected us against this type of foul system. My guess, the military is coming after you. You’re less than 1% of the population. We can have you executed in hours. Think about that. You don’t control this world, we do.  Your financial money is worthless. Only you lose, we gain.

tarabel's picture



I thought it was ironic, to say the least, that people who put their flight capital into the "safety" of a Swiss bank account may well be putting it into a bank that is taking their money and investing it right back into the currency they fled from-- as per the SNB guideline upon investing surplus funds in other currencies. They may not be nearly as safe as they think.

Atomizer's picture

Secret FX carry trade strategy amongst faggot Central Banking members who suck up their male partner and see the screen is green. With HFT, they can anal fuck 3-4 times a day without monitoring the screen. Clean up protein facial stains. Use the Bidet to wash out ass cum. Then phone the insider for tomorrows bets.

US SEC is Clueless or in on fraud. Fraud is the answer. Corrupt Government!

deerhunter's picture

every paper currency on the planet is monopoly bills.  I did not say money.  When will people wake up and realize that we have been ass raped by the FIRE industries our whole lives.   Why is a 20 dollar bill worth more than 4 singles?  Know who asked me that?  My 8 year old grandson.  He said there is more paper in the 4 singles just like 4 steers are worth more than one.  Call it country wisdom.  I don't know how this all changes but it is coming.  Not doom and gloom.

tarabel's picture



Many people fail to understand that 2008 was a storm warning rather than a final event. I got hit very hard back then, but hopefully I've learned a few things in the meantime. I may make some different mistakes this time around but I'm not going to have a bunch of mofos hounding me day and night for things that I ain't got.

Atomizer's picture

hopefully I've learned a few things in the meantime


You got fucked in buying a home under Clinton and Al Greenspan (Fed).

realWhiteNight123129's picture

Jordan should buy Gold, it would push down the CHF against Gold without compromising the balance sheet of the SNB. If someone in D.C. does not want to see Gold rise they will have to let the SNB cheapen the CHF against Gold.

Encroaching Darkness's picture

"The idea that all countries act in their own individual interest, that you just let the exchange rate float and the whole system will be fine: This all is a dangerous illusion."

You got it exactly bass-ackwards. It's:

"the idea that central planning can control all outcomes favorably with imperfect information, that you can reward and punish economic behavior with interest rates and exchange rates and get the results you want: This all is a dangerous illusion".

But lying control-freak thieves will be lying control-freak thieves, and it's ridiculous to expect them to behave any differently - until it all breaks down and the crowds with the torches and pitchforks come to smash in the door.

disgruntled housewife's picture

Start using cash exclusively. Figure out what you need at the beginning of the week and take it out. If you think they control things now wait until cash is outlawed. By using cash, the merchants you purchase from will avoid bank charges. It will also help you keep a budget. Conveinence isn't worth the intrusion on your privacy. They can track every purchase you make using an ATM or credit card and now your phone. The banks and government don't deserve the paper trail you supply them by using your cards/phone.  

gwar5's picture

#Shock Face. Former BIS guy advocating more centralization and more power for IMF and central banking. 

pcrs's picture

"Freedom is bad and the centralised powers that be need more power and control to deal with crisis"

Right, because that power is never used by these centralised powers in their self serving interests of increasing wealth for the monopoly of violence.