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Why Switzerland should have listened to Hong Kong on currency pegs

Plus: Catching up on the careers of old colleagues at a big birthday

24 January 2015

9:00 AM

24 January 2015

9:00 AM

The Swiss National Bank usually ticks away as quietly as one of its nation’s more expensive timepieces, but when the cuckoo does occasionally burst out of the clock, all hell breaks loose. After a policy was introduced in September 2011 to depress the Swiss franc against the euro (as traumatised investors continued to pour money into safe-haven Switzerland), governor Philipp Hildebrand resigned when it came to light that his wife Kashya had sold a huge bundle of francs ahead of her husband’s market intervention, then bought them back at a handsome profit.

Now, weeks after Hildebrand’s successor Thomas Jordan called the informal fixing of the franc at €1.20 ‘absolutely central’ to his bank’s strategy, the peg has been removed — causing the Swiss currency to soar to €0.85 before settling around one to one. Some brokers, hedge funds and speculators (Mrs Hildebrand has not revealed her position this time round) have taken caning losses, while Swiss stocks have plunged in anticipation of weaker exports and reduced growth. Meanwhile, players who profited from the last week’s action have reportedly moved on to attack the peg which holds the Danish krone within a very narrow range against the euro, forcing Denmark’s central bank to cut its deposit rate to a record low.

Free-marketeers have been saying it was a mistake for the Swiss to introduce a peg in the first place, bottling up future turbulence, especially as it relied on the potentially inflationary device of creating new francs with which to buy billions of euros. One reason for ceasing to do this now, we’re told, is that when European Central Bank chief Mario Draghi launches his own money-printing quantitative easing programme — as is widely but nervously expected this week — downward pressure on the euro would require even more Swiss money-printing to hold the peg.

Those who regard QE as irresponsible or dishonest in principle would be horrified at the prospect of neighbouring central bankers showering each other with notes on which the ink is barely dry, while those who regard the euro as a doomed exercise in political fantasy regard the Swiss episode as a minor sideshow compared with the cataclysm that may await the single currency after the Greek election.


But a more pragmatic voice is that of Hong Kong financial secretary John Tsang, whose advice is that if your currency happens to be pegged — as Hong Kong’s dollar has been, at 7.80 to the US dollar, since 1983 — you unpeg it at your peril: for Hong Kong, artificial currency stability will continue to be ‘a magic needle for calming the sea’ (the original needle belonged to the Chinese Dragon King of the East Sea, by the way).

Anyway, I hope you didn’t set off last Friday via a night at the non-functioning Eurotunnel terminal for some suddenly super-expensive Swiss skiing en route to the World Economic Forum. My Davos invitation has been lost in the post for the 44th year running, but I’ll be conducting my own economic forum combined with a birthday lunch at the Bel Air restaurant at Courchevel this weekend, travel and snow permitting. Flying into Geneva, I shall attempt to cross into France before spending any money — though I suppose in an emergency I could just print my own.

Where are they now?

The birthday’s a big one: big enough to qualify for a Senior Railcard. Naturally it has been preying on my mind, so that even a quick scan of the latest City profits and losses triggers memories from half a lifetime ago. Here, for example, is pugnacious Terry Smith, who is ‘set to share a £10.6 million windfall’ after his Fundsmith investment firm achieved a 23 per cent uplift in value last year, twice the rise in global equities, thanks to his technique of picking a handful of strong stocks and holding on to them: ‘Don’t just do something, sit there,’ as he puts it. I first knew of Smith as a junior planning manager at Barclays in the early 1980s, later as a controversial analyst of bank shares at BZW, the predecessor of Barclays Capital — where I once advised a junior researcher to seek his advice on how to deconstruct the accounts of a riskylooking Asian bank. ‘What did he say?’ I asked her; ‘He just talked about himself,’ came the puzzled answer, but that’s another technique that has served him well.

Then I see reports of hedge fund Sloane Robinson sharing a £12.5 million pay-out among senior managers despite hefty losses on Japanese holdings in the first part of 2014; I recall co-founder George Robinson, now worth £180 million, in his previous career as a station manager for the Cathay Pacific airline in Seoul. And Michael Spencer, Icap tycoon turned Tory fundraiser, whose private investment firm has just lost £28 million, causing his fortune to dip back towards the half-billion mark; when I first met him he was a fun-loving young money broker, the only person I knew to have his’n’hers Porsches for himself and his then wife.

Career advice

I wonder if these titans of the money world ever ask each other, ‘Whatever happened to Vander Weyer? How many millions has he stashed away over the decades?’ Oh well, as I repeatedly say, writing this column is still a lot more fun than having a job.

And to keep all this in perspective, a reader reminds me of another veteran who should have been saluted in my recent item about longevity in the business world. He is Irving Kahn, Wall Street’s oldest active investor, who made his first trade — short selling a copper stock — just before the crash of 1929, and who recently passed his 109th birthday. I’d be fascinated to know what he thinks of the euro, but here’s the career advice he gave my correspondent as a new graduate many years ago: ‘Figure out what you like to do and do that. Don’t worry about the money. If you’re good at what you do, the money will take care of itself. You might make more, you might make less, but focus on the work, not the money.’


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