The Fevered Franc

Now the Swiss, of all people, are all hot and bothered about those familiar international fall guys, the currency speculators. In sometimes furious trading on the European money markets over the past five months, the Swiss franc has risen in value by 22% against the dollar and just under 6.5% against the mighty West German mark. Lately the franc's gyrations have been especially wild. Last week, as the franc bounced to a new alltime high of 2.47 to the dollar on the Zurich exchange, the Bern government took a drastic step to curb the unwanted popularity of Swiss currency. Retroactive to Oct. 31, nonresidents who make large purchases (equivalent to $20,000 or more) of francs and stash them in Swiss banks will have to pay negative interest--in effect, a penalty--at a painful annual rate of 40%.

The Swiss are upset because the franc's dramatic rise is increasing the cost of Swiss goods and services to outsiders and thus endangering the export and tourist industries that account for 40% of the country's gross national product. In part the upward march of the franc--and other currencies--against the dollar reflects a continuing uneasiness about the strength of the U.S. economy that backs it. The main cause of the franc's extraordinary rise, however, seems to have been some heavy purchases of Swiss francs in the past few months by Middle East governments trying to diversify their currency holdings. Those purchases have prompted many speculators to sell greenbacks and buy francs in the belief that they will profit later when more oil money floods into Switzerland and pushes the value of Swiss currency even higher. Even now, says one unhappy Swiss bank economist, "there is a flood of petrodollars waiting at the gate."

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