Switzerland & the Swiss Franc i

Switzerland &
the Swiss Franc
in the 21^st Century

by Ronald Holland

Note, Ronald now lives at Asheville NC's Wolf Laurel Resort, where he markets ski property, homes and real estate in one of the highest elevation 4-season mountain resorts in the eastern United States. He is an internationally known financial & marketing consultant & author of 3 books and over a hundred articles & reports, a leading speaker at financial conferences in the US and abroad and editor of several internet based news sites. He invented several financial products & services including the first gold IRA account and the first Swiss franc denominated variable annuity portfolio in the US and was president of a Swiss owned investment firm licensed in 47 states.

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Switzerland has the respect of the world for it’s stability, safety, and peacefulness. How is it that this tiny country, measuring only 137 by 216 miles, with almost no natural resources, has the world’s strongest currency? Has the second highest per capita income in the world and is the third largest financial center in the world, managing private assets of more than 2 trillion Swiss francs?
--The Oxford Club, Swiss Money Secrets

Why Should You Still Consider the Swiss Franc?

The Swiss franc has not been the world’s strongest currency since the currency peaked in late 1995. Except for a strong year in 1998 during the Asian Crisis, the currency has gone nowhere since its pullback in 1996 from record levels reached in October 1995.

It is obvious that the American dollar has been the world’s strongest major currency during the late 1990’s, thus making all other currencies weak in comparison. Why shouldn’t Washington’s strong dollar policy pursued by Greenspan’s Federal Reserve continue in the 21^st Century? Even the world’s newest political currency, the Euro has declined almost 18% during 1999 when compared to the dollar. It’s the US dollar which appears to be "good as gold" so why should American investors diversify their investment portfolio holdings into other currencies?

Currency diversification is important because all markets are cyclical and tend to go from one extreme to another. Remember gold was heralded as the salvation for investors during the inflationary 1970’s and early 80’s as the metal peaked at over $800 per ounce. Today it is under $300 an ounce.

The US dollar has benefited from massive foreign investor inflows into our bull market in stocks that has continued with minor interruptions since 1987. But again, no market or investment goes up forever. Therefore, I believe the Swiss franc is attractive at these levels for investors wanting currency diversification outside the dollar. The Swiss franc still performs well as a counter cyclical investment that tends to move up in value when the US stock market or dollar goes down. This was shown in 1998, and even early in 2000 when the US stock market took a short term hit.

If you feel your portfolio is over concentrated in the US stock market or too much of your assets are in US dollar denominated investments, now is the time to consider diversification into Swiss franc denominated investments. We can provide you a Swiss franc denominated alternative registered in the U.S. that is free of the service problems, statement delays and the general hassle of being forced to deal "long distances" offshore.

Your US Swiss investment offers tax deferral, quality customer service, timely statements and immediate information available by simply calling a toll free number; plus your account WILL NOT be reportable as a "foreign financial account" as is the case with most offshore investments.

Switzerland – Investors Love It / Politicians Hate It

Productive individuals around the world that prefer limited government and honor private property rights view Switzerland very favorably. The Swiss government is a shining example of how a decentralized confederation government, that still respects individual and states rights, can create one of the highest standards of living in the world.

The truth of the matter is that many investors like Switzerland and the Swiss franc, while most governments do not. Politicians, usually after the private wealth of their citizens, look at the time honored Swiss traditions of independence, financial privacy, and limited government as obstacles in their path of looting and pillage through increasing taxes, regulations and lawsuits.

This small country is loved by her patriotic citizens and by knowledgeable world investors that choose Switzerland and the Swiss franc, which is still backed by substantial gold reserves, for their personal safe haven of wealth. Although the Swiss voters have ended the statutory gold backing of the Swiss franc, Switzerland will continue to maintain enough gold reserves to back their currency.

Top 7 Gold Holdings in 1998
1.	Euro-system*		12,574
	Germany	3,469
	France	3,024
	Italy	2,452
	Netherlands	1,012
	ECB	747
	Others	1,870
2.	United States		8,135
3.	IMF		3,217
4.	Switzerland		2,590
5.	Japan		754
6.	United Kingdom		716
7.	Russia		446
Euro-system includes Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. Source: World Gold Council*

Political dissidents and over taxed citizens around the world appreciate Swiss political neutrality and the importance of Swiss banking secrecy. Wealthy citizens hounded by unscrupulous lawyers and corrupt legal systems that determine guilt by one’s ability to pay, appreciate Switzerland’s time honored respect for private wealth and its honest legal system.

Other centralized governments out to over-tax and over-regulate their citizens despise Switzerland’s confederation form of limited government. The Swiss practice of armed neutrality is often an embarrassment to governments, such as Washington that attempt to enforce foreign policy through armed intervention around the world.

The aspiring new mega-government’s of the world, such as the United Nations and the European Economic Union, hate Switzerland’s desire to remain sovereign and independent by its stubborn resistance to their demands to join these "one world" entities. Legal predators and corrupt legal systems hate the rule of law in Switzerland that still protects wealth and assets from their attempts at plunder through vindictive lawsuits and unwarranted asset seizures.

Although financial services and investment performance are generally comparable everywhere in today’s global investment world, Switzerland’s unique benefits of a historically strong Swiss franc, a measure of asset protection from lawsuits, and financial privacy are the envy of outside financial competitors and greedy revenue starved governments around the world.

The United States Today

During the past 60 years, the United States has fallen from the free world’s champion of individual and political freedom to an aging debt ridden bureaucracy that over taxes much of the wealth and income of its citizens.

During the late 1990’s, we’ve experienced an exploding equity market mania to a degree never seen before in the United States. The politicians have claimed temporary cuts in the deficit, (by stealing from Social Security revenues) and continued their attempts to cover up the true economic and political problems of the Washington federal government.

What To Expect in 21^st Century Switzerland?

In contrast to Washington and the United States, change comes very slowly to Switzerland due to their decentralized confederation form of government. Throughout their long history as a confederation and republic, the Swiss have learned to compromise and negotiate.

Although Swiss politicians are generally no better or worse than the politicians in Washington or other nations, the fact is they do not have the ultimate control of their government, unlike here in the US. In the final analysis, the Swiss voters control their politicians through the political tools of referendum and initiative. Therefore, politicians and special interest lobbyists can’t impose new taxes, pass unfair regulations or create new government programs without the electorates consent.

Switzerland’s Major Challenges In the Early 21^st Century

Their main hurdle is the continued bad publicity and attempt to destroy Swiss financial privacy through the Nazi gold and lost bank account issue. I’m sure that the Swiss certainly weren’t blameless in this regard, as Swiss banks are large corporations out to make a profit. Still I believe if an accurate historical accounting of what happened is allowed to come forth between the groups battling for money and the financial competitors trying to hurt the reputation and privacy of the Swiss financial industry, Switzerland will be vindicated from most of the charges.

The second issue that Switzerland must confront is pressure, both foreign and domestic, to join the new European Monetary Union. Recent developments in the EU, as well as the 18% collapse in the Euro currency up through the end of 1999, continue to indicate that nations like Switzerland and Great Britain can benefit by staying out of this latest attempt at unification in Europe.

I believe the EU was the final attempt in the late 1990’s by European politicians and their US political establishment allies to stop the devolution of European nations into smaller more governable entities. The break up of Czechoslovakia and the move toward regional independence movements in Belgium, Italy, Scotland and Wales really concerns the political establishment. It’s easier to control large nation states as opposed to a number of independent new nations that might prefer that their own national interests take precedence over international interests.

The weakness in the Euro currency could mean that over time the Swiss may have to absorb substantial capital inflows from Germany and the rest of Europe, including even the former Soviet Union. This possible flood of Euro’s could cause the Swiss franc to appreciate in value to even par with the U.S. dollar. Remember, the Swiss franc reached 89 cents back in the fall of 1995.

Although this would be good news for investors buying into the Swiss franc at today’s bargain basement levels, it would not be good news long term for the Swiss economy. With the Euro currency at record lows any move by Europeans into the Swiss franc will mean the Swiss will have to maintain a monetary balancing act between a stronger currency and what is good for the Swiss exporting economy.

Although I value the Swiss franc as a hard currency and the currency of choice for a counter cyclical investment, be aware that currency movements are often violent and very short term in nature. Investors should diversity into the Swiss franc through products that allow for fast and convenient movement in and out of the Swiss franc and other currency investments as economic and financial circumstances dictate.

Why Switzerland Has Retained A Confederation
Form of Limited Government?

This alpine territory is quite small - comparable in size to the sovereign state of South Carolina - but it is home to over 7 million people, including some 1-½ million foreign nationals residing or working there. Switzerland has four official languages that reflect neighboring cultures. Some two-thirds of the Swiss speak German dialects, while 19% speak French, 8% Italian and 1% Romanisch, a dialect similar to Latin. Roman Catholics account for 48% of the population and Protestants some 44%.

Yet, these people with such diverse backgrounds have learned to live together, and they’ve built and maintained a country that emphasizes real freedom and prosperity through it’s confederation form of government. Their confederation government structure is very decentralized with most of the power residing at the canton, (similar to our states) and local levels. A close comparison can be made to the structure of the Confederate States of America and to America’s first government, The Articles of Confederation.

Switzerland has retained this decentralized form of limited government when most nations including the US have moved toward a strong federal system simply because the Swiss citizens would not allow the loss of political freedom by the local governments. The Swiss political structure is specifically designed to prevent the development of an all-powerful central government like what has occurred in the United States.

It delicately balances the rights of the individual with the interests of the communes (villages), the city, the canton (state), and the federal government. Parliament is comprised of two chambers, with representatives from each of the 26 cantons representing a dozen different political parties.

A Government By the People & For the People

Despite the diversity in languages and cultures, Switzerland remains a stable and unified society with the world’s oldest surviving democracy. Through a direct participatory form of democratic government, ordinary Swiss citizens decide on important constitutional issues as well as local ordinances. Every Swiss citizen has a direct say on how the government is run, thereby able to show support for government actions or keeping it in line. The Swiss have in practice and not just in theory, (as in the United States) a government controlled ultimately by the people.

An often-overlooked point in history is that the Swiss Confederation form of government strongly influenced America’s founding fathers and the structure of early American government. In fact, our first governing document, The Articles of Confederation, closely resembled the governmental design of the Swiss Helvetian Confederation.

To further protect the rights of the individual Swiss citizens three political safeguards are built into the system to assure that the people rule the government and not the other way around

A Weak Chief Executive - Can you name the President of Switzerland? Probably not. In fact, very few Swiss citizens would even be able to give the correct answer. In contrast to the United States, where our Chief Executive is constantly in the news, (usually for the wrong reasons) and always surrounded by secret service protection, the Swiss do not make a profession or big deal out of politics. The President of Switzerland can often be found riding to work on the public streetcars in Berne, Switzerland’s capital. Their executive branch of government is a collegial system, which prevents the rise of a strong chief executive and it strives for political consensus rather than confrontation. The Swiss federal government is weak by design - just the way the Swiss want to keep it.

The Referendum - The Swiss people fortunately have the Right of Referendum that gives them an opportunity to oppose any law passed by Parliament or enacted by the government. If 50,000 voters, a little more than 1% of the electorate, sign a petition questioning a particular law passed by the government, the law must be submitted to a popular vote for final approval. The law is then rescinded if more than 50% of the voters oppose it. Any proposed change in the Swiss Constitution also requires a referendum.

Harry Browne, a good friend, financial writer and former resident of Switzerland, notes that referenda occur much more frequently than the two-year election cycle found in many states of the U.S. "Once a matter qualifies for a referendum, the vote will be taken soon afterward. So these votes are sprinkled throughout the year, and they happen not only at the federal level, but at the cantonal and city levels as well." This is also in direct contrast to the U.S. where public pressure against legislation must be directed through elected representatives who are subject to massive pressure by special interest groups.

The Initiative - Switzerland’s concept of the Right of Initiative is unique in the entire world today. It allows the Swiss citizens the opportunity to actually initiate legislation directly. When 100,000 signatures are obtained for a particular proposal, a national election is held to approve or reject the proposed law. Assuming the proposed law meets certain legal standards.

The conservative nature of the Swiss electorate and their obsession with defending their freedoms is clearly reflected in some of the proposed legislation that has not been approved in various initiatives and referenda. For example the Swiss voted not to:

S Increase tax rates on higher incomes
S Join the United Nations
S Reduce the retirement age for Social Security pensions
S Loosen Swiss banking secrecy laws
S Join the European Union
S Reduce the workweek from 44 hours to 40
S Increase paid holidays from 3 weeks to 4.

The Swiss Foreign Policy & World Famous Financial System

We will attack no one, participate in no war, will make no alliance, and will defend ourselves.

-The Swiss Code of Neutrality as first drafted in 1515

An important cornerstone in Swiss history involves national security. Switzerland places its safety and security above all other considerations. Switzerland is not a member of the United Nations or NATO, nor a member of the European Union, and more importantly is not directly influenced by the political decisions of these international bodies. But as a neutral country, Switzerland plays an important role in world politics as an unbiased peaceful site for diplomatic negotiations and as a base for international agencies such as the International Labor Organization and the World Health Organization.

Neutrality Combined With Military Strength –

The Swiss people have guarded their national independence through a strict policy of armed neutrality. This policy has produced the largest (mostly civilian) army in Western Europe and has saved Switzerland from destabilizing involvement in two major 20th century wars.

The Swiss believe neutrality is best achieved by a strong nation rather than a weak one. Within 48 hours, the country can mobilize an army of 625,000 soldiers, 800 battle tanks, 300 jet fighters, plus missiles and artillery - all stored in hundreds of defense positions and underground fortresses.

Switzerland has armed sentries at all border crossings and there are over 3,000 points of demolition on bridges and tunnels to destroy paths of invasion or other access. Most of this defense structure is invisible. Carefully camouflaged into mountainsides are arsenals, hospitals, airplane hangers, with the (Swiss version of interstate highways) often designed to serve as emergency air runways.

All able-bodied men between the ages of 20 and 50 serve in the army, and are trained for specific jobs. In the event of war or other national emergency, the Swiss can also call upon 520,000 trained civil defense workers. This program can provide protection to over 90% of the Swiss population in Swiss shelters that are designed to withstand nuclear, biological and chemical attack.

The Swiss Economic Miracle –

The Swiss have a healthy regard for work, whether in harsh alpine terrain or in the modern banking sector. Due to its import needs and small domestic market, the level of foreign trade per capita is higher than in any other industrial nation. The manufacturing sector depends on raw material imports that are processed into export products of the highest standards. Both in the manufacturing and service areas, Switzerland depends heavily on a skilled labor force with advanced technological expertise.

Major industries are in pharmaceuticals, chemicals, watches and precision instruments, engineering, foods, tourism and financial services. With the majestic alpine landscape and cultural diversity, tourism revenues are second to those from manufacturing.

The Swiss Financial System - A Bedrock of Safety.

Swiss banks have existed since the Middle Ages, but Switzerland’s reputation as a world financial haven was gained before and during World War II. Private and government capital fled the beleaguered nations to find refuge in Swiss banks as the Nazi onslaught advanced throughout Europe. Switzerland’s neutrality and its secrecy laws provided not only a safe haven for the wealthy, but the difference between survival and extinction for countless war refugees.

Today it is estimated that Switzerland has almost a 35% market share in the management of the world’s private wealth, exceeding $2 trillion Swiss francs. Switzerland attracts money from investors around the world seeking the financial security this tiny nation offers.

Many individuals and corporate customers are interested in Swiss banks as a means of establishing a strong offshore base for global investments. The Swiss banks combine traditional banking with international brokerage and financial management; depositors can bank in US dollars, Swiss francs or in almost any other national currency.

The Swiss Franc -
Still A Safe Haven Currency For American Investors!

In summary, this small European nation continues to define the essence of financial freedom and security for investors the world over. Constitutional safeguards on private property protect foreign assets. Although the Swiss government has waived banking secrecy provisions for certain criminal proceedings, financial privacy is still protected by law.

I believe Switzerland and the Swiss franc will still be strongly favored by 21^st century global investors that want the benefit of currency diversification and an investment that tends to move inversely to the US dollar and US stock market.

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Ronald Holland is editor of this website