(Bloomberg Opinion) -- In the looking-glass world of negative-interest rates, the Swiss are in a special category. The Swiss National Bank went below zero ahead of everyone else back in 2014; now they’re poised to slash rates still further. Swiss banks like UBS have followed suit: They’ll soon start charging larger depositors to hold their cash.
The Swiss actually pioneered the practice back in the 1970s for the same reason: to keep their safe-haven currency from appreciating too much. But the lessons of that monetary experiment should give pause to anyone who believes that negative rates can halt capital inflows and appreciation in countries where the currency is fundamentally strong.
The postwar Swiss economy was largely driven by high-value exports like precision tools and watches. This worked well in the Bretton Woods system of fixed exchange rates that defined much of the postwar era. But when U.S. President Richard Nixon suspended the conversion of dollars into gold in 1971, currencies gradually began to “float” against one another. The dollar went into a steep decline.
This unsettled currency markets. But one nation beckoned as a refuge from the growing storm: Switzerland. A combination of fiscal probity and monetary stability made the currency a safe place to wait out the crisis, and investors began buying up Swiss currency, driving up the value of the franc.
This was a disaster for Swiss exporters, and the Swiss government initially imposed reserve requirements on non-resident deposits. When that failed to stem the inflow of capital, they banned interest payments to non-residents. And when that didn’t work, they went negative, imposing a two percent penalty per quarter on anyone with the temerity to buy francs.
They backed off this radical move in 1973, but in the fall of that...