Switzerland as a World Mirror

April 28, 1947

GENEVA—The traveler in Switzerland, if he depended on first impressions, could easily imagine himself in a paradise of peace and plenty. Physically untouched by the war, incredibly neat, with every utilizable square inch of soil seemingly under cultivation, the whole Swiss countryside looks like one enormous golf course that has just been rolled and mowed, and the tourist, though he may sometimes have trouble getting sugar or butter, is extremely well fed. True, he must present ration coupons in restaurants, but he seems to get all that he can use in the cities. Stores display a surprising variety of quality goods. Industry also seems prosperous.

Switzerland exports 90 to 95 percent of its entire production of watches, about half of which go to the United States. Switzerland is actually compelled to ration its own exports in money values (though not quantity). Its exports of watches are at record levels. They rose from 195,000,000 francs’ worth in 1939 to 492,000,000 francs’ worth in 1945.

But beneath this smiling surface, Switzerland has her serious problems. Rations for Swiss families are more severe than those for the tourist. There are separate rations for sugar, jams, pastry, flour, cheese, butter, lard, meat, bread, and milk. Wholesale prices have more than doubled since 1938. The cost of living has risen in the same period more than 50 percent in spite of price controls which hold down rents to the 1939 level. The inflation is reflected in the rise in bank-note circulation from 1,700,000,000 francs at the end of 1938 to 4,100,000,000 at the end of 1946. The budget is still out of balance.

A great problem in a small industrialized country like Switzerland is that, in a world of super trade barriers, it is absolutely dependent on foreign trade. It must export or die and import or die. The basic function of its exports is to buy imports. Yet, though the present demand for its exports is unlimited, Switzerland is cut down to about half its prewar supplies of coal. It is short of raw materials. It is forced to make bilateral agreements with other nations.

To supply its essential import needs, it insists that nations receiving credits from it use part of the money to buy some of its luxury products as well as the machinery they need. Where these special bilateral agreements do not exist, it obliges each private trader to develop his own bilateralism. The exporter must arrange an approved import equal to his export and the importer an approved export.

Switzerland is almost the only country in the world today where it is both legal and respectable to deal in foreign currencies at the reevaluations put on them by buyers and sellers. These Quotations are published daily in the newspapers. As the convex mirror of an automobile focuses a large world in small space, the Swiss market in foreign banknotes gives a miniature survey of the currency chaos.

This market certainly reflects the local supply and demand situation in these banknotes. There is more dispute concerning the extent to which it reflects their real values. Is there, for example, a real discount on the American dollar or only a temporary one due to special conditions in Switzerland? The question is difficult to answer with confidence, yet discounts on other currencies seem to reflect rather accurately the known general conditions. Here are quotations in Swiss francs on April 14 of some outstanding banknotes compared with their official rates:

It will be noticed that the free dollar, or what the Swiss call the financial dollar, is selling in Switzerland at a discount of about 15 percent. The reasons for this are too complex to go into here, but the situation has some strange results. The Swiss National Bank will exchange up to $125 a week for American tourists, converting travelers checks into Swiss francs at the official rate of 4.30. It is then perfectly legal for the tourist to go around the corner and buy dollar bills with the francs at the rate of 3.65, thus coming out with nearly $150. As the first part of the transaction is recorded on his passport, however, he can’t keep pyramiding the deal.