For years we’ve heard US politician rail against Chinese currency manipulation yet the country that deliberately and openly manipulates its currency is given a tacit nod.

In September we will be celebrating the third anniversary of the Swiss National Bank and a Bloomberg survey of 23 economists yesterday showed 75% of them keeping the 1.20 floor in place for at least another two years. SNB President Thomas Jordan said last month the cap would remain in place for the “forseeable future”.

Not once in the Bloomberg story does anyone mention the political risks. What Switzerland is doing blatantly violates trade treaties but everyone turns a blind eye.

The US Treasury can’t even muster up the word ‘manipulation’ in its semi-annual report on currency manipulation. The summary of Switzerland is almost apologetic:

The exchange rate floor has contributed to the reduction of deflation and overall economic stability. Once economic conditions normalize, a return to a freely floating currency would be desirable.

“Would be desirable!?” is all the most powerful military and financial force in history could muster.

If the Treasury followed the laws of the United States and named Switzerland a currency manipulator, here is what it would have to do:

If the Secretary considers that such manipulation is occurring with respect to countries that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the United States, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis, in the International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar to permit effective balance of payment adjustments and to eliminate the unfair advantage.

On the point of the current account surplus, the Treasury goes out of its way to explain away Switzerland’s 13% of GDP current account surplus, which is among the highest in the world.

On of the reasons they cite is safe haven flows but that’s getting stale. Another is this gem:

The activities of international commodity trading companies could add up to 4.0 percent of GDP to the surplus even though some have limited operations in Switzerland.

Translation: Switzerland is running a gigantic commodities trading tax evasion ring and punishing them with a stronger currency would upset some people.

So what the heck is going on?

This is the answer: There’s enough dirty money in Switzerland to bring down virtually every political party, industry or lobby in the world. Swiss politicians know it and so does every other government.

As a compromise, Switzerland has begun to put the brakes some of its most heinous banking crimes. We’re not talking identifying the Greek accounts who looted the country (that the Lagarde list almost disappeared is all the proof you need of a larger conspiracy). We’re talking North Korea or Mexican drug cartel level and worse.

Any other information governments get from Switzerland in exchange for the peg will be used to crush domestic political opponents.

swiss banking secrecy