A curious development took place today. Rather a subtle one. But when it comes to watching central banks, the subtleties are often worth noting. I’m assuming all readers know that the head of the Swiss National Bank (SNB) is out. The question is, “What’s next?” Strangely enough the answer is, “Nothing”.
I wrote the other day that Thomas Jordan would be appointed as the next head of the SNB. Wrong. Jordan was made “Acting” head of the SNB. At first I thought this was just a formality and that Jordan would soon get the final approval. After all, he was the logical candidate, and someone has to run the place, right?
He has the credentials. He appears to have been a significant factor in setting policy. He knows where the bathroom is, and knows who does what at the SNB (he’s been there 15 years).
However, I learned today that Mr. J is not the shoe-in I thought he was. The new Swiss Federal President, Eveline Widmer-Schlumpf, said this:
"It could take several weeks and potentially months before the cabinet appoints a successor for Philipp Hildebrand."
Months? Did she really say months? Does she not understand that the markets hate uncertainty? That there is a fair bit at stake here?
She does not offer a reason for the long delay, but continued:
“The Federal Council had no legal duty of supervision. The National Bank is independent.”
By this she means that the political side of the equation has nothing to say about the activities of the SNB. That’s true, but then why should it take a period of months before the leadership at the SNB is re-established?
In odd twist, Ms. Widmer-Schlumpf also happens to be the Swiss Finance Minister (go figure). One can safely assume that she understands the risks associated with a delay. By itself, it causes uncertainty. This elevates the risk of a market test of the 1.2 peg. That risk could be avoided with a rapid appointment of Jordan and a reaffirmation of the independence of the SNB.
So why is she taking the risk? The answer is that there is opposition to the continuation of the independent status of the SNB. Widmer-Schlumpf can’t do what she wants to because of that opposition.
What the hell does that mean? A few thoughts:
What appears to be coming up for discussion in Switzerland is the independence of the central bank. Who does it report to? Who controls it? What are its powers? What checks are there in the system?
These are very weighty questions. It’s understandable that this could take months. While Mr. Jordan may ultimately get the nod and become the true boss at the SNB, it's likely that the SNB will be be subject to new rules and oversight when he finally does gets that title.
There was no reaction to this news in the markets. It’s early days. I suspect we’ll be hearing more on this in coming months . There are two very critical issues at stake. One is the future status of the peg and the sovereignty of the Swiss currency. That’s a big one.
Much more significant, and long overdue, is the broader discussion regarding the central bank’s independence. I find it interesting that this is happening in Switzerland. As far as independent central bankers go, the SNB is on top of the list. At least it was.
Post Mortem on Hildebrand – Got Verdeckel!
A significant amount of information had been provided to the public prior to Hildebrand’s resignation, none of which proved he had prior knowledge of his wife’s intentions to trade currencies. We now know he was lying.
After the resignation, the SNB released an email that appears to have been withheld to the press and the external auditors who reviewed the Hildebrand affair. The note was from Sarasin bank to Hildebrand. In it, the author reminded Hildebrand that he had agreed, in a phone call on August 14th, to a currency "diversification" strategy by Kachya.
This was the smoking gun that brought Hildebrand down.
There is an odd twist to this story. Just prior to being on national TV to discuss the issues with Hildebrand and the SNB, the National President of Switzerland, Widmer-Schlumpf, (yes, the same as above) received a copy of the damning email. She understood immediately the significance of the document and what it would mean. What did she do?
She went on TV and defended Hildebrand and what had happened with his currency transactions. She said the government was supporting the existing leadership at the SNB. She did this to a big audience knowing full well that Hildebrand had misstated the facts and that it was now certain he would have to resign or be fired.
Later she was asked about this. She responded:
“I thought about canceling the appearance.”
The President thought about it? After thinking about it, she went on TV and perpetuated the story that there was insufficient evidence to force Hildebrand out. Is this a fib? Is this how things get done by world leaders? They go on TV and say stuff that is not true?
I can’t think of a screwier end to this screwy story.
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