Agustin Mackinlay (00:00)
How can we account for the rise and rise of the Swiss franc? What are the factors that explain the strength of the Swiss currency? And more importantly, what corporate treasurers do about it? Welcome to CurrencyCast! My name is Agustin Mackinlay. I'm the Senior Financial Writer at Kantox and your host. In this episode, we have the pleasure to welcome Costa Vayenas, Chief Investment Officer at
Genesis Investment Partners and author of The Swiss Franc from 1798 to 2055. A very good book. Costa Vayenas Thank you for joining us today on CurrencyCast and a warm welcome to you.
Costa Vayenas (00:53)
Thank you very much, Agustin, and thank you for inviting me.
Agustin Mackinlay (00:56)
Costa, you start by introducing yourself to our audience, please
Costa Vayenas (01:01)
Yes, I'm Chief Investment Officer at Genesis Investment Partners. We're based in Zurich. We serve ⁓ first generation tech entrepreneurs and ⁓ created families in that space.
Agustin Mackinlay (01:16)
Right. Now, let's devote the first part of this conversation to "The Swiss Franc from 1798 to 2055" There we have it. It's a very good book. I reviewed it on LinkedIn. The author is at home with both the Uncovered Interest Rate Parity Theorem and Classical Philosophy. So that's tour de force right? Now,
Costa Vayenas (01:29)
Thank you.
Agustin Mackinlay (01:44)
One thing that strikes us as readers is when you think of non-fiction books, you usually think of say of biography or a book on history, on politics and so many other subjects. But it's not that often that we see a book on currencies. Perhaps the US dollar is an exception. We have this year too, at least two good books on the US dollar: "Our
Dollar, Your Problem" by Ken Rogoff and ⁓ "King Dollar" by Paul Blustein. But it's even less often that we have books on the Swiss franc. And so my first question regards motivation. What are the main driving forces that led you to write the Swiss franc from 1798 to 2055?
Costa Vayenas (02:37)
Yeah, thank you, Agustin. So my background is as an analyst, and I'm always interested in data and charts and kind of recreating data series. And I noticed about a year and a half ago that I was the only one on the internet who'd recreated the Swiss franc to around 1850. And so I thought, you know, why is that?
And then I wanted to find what happened before 1850. And I discovered it was very hard to find that information. And I approached the Swiss National Bank, which prints the Swiss franc. And they were very kind and said they'd help me and ⁓ look for data in their archive. And they said I should send them a list of questions. And so my first question was, know,
What was the value of the Swiss franc in US dollars in March 1799? And then there was silence for a while. And then they go back to me and they said, well, you know, we don't have data in our archive on the questions that you're asking. And then I said, well, I know there was trading happening. We have history and information. So I'm going to find this information. And that was the trigger.
Agustin Mackinlay (03:41)
Mm.
Okay.
Costa Vayenas (04:02)
to kind of look for this data. And so first to create the database and then to tell a story.
Agustin Mackinlay (04:05)
All right.
Right. Now the book is not very long, it's about 176 pages, but it's richly illustrated. There are 62 illustrations, I counted 50 charts, and as you said, some of those charts go back decades in time, some of them even centuries, and there's one that takes us all the way to Babylonian times. So, tell us a little bit more about that research process.
Costa Vayenas (04:40)
Yeah, so ⁓ for more than 10 years, ⁓ I've been building up a database on historical interest rates and exchange rates. And the Babylonian one looks at the lower bound of interest rates across 5,000 years. So we have history. We have data on interest rates by collateral. The best collateral was gold.
Then second was silver. And the third was an agricultural commodity such as barley. So we have the data that shows us what was the interest rates in these different empires and countries. And I ⁓ recreated the minimum rate over 5,000 years on a chart. And that appeared in the Financial Times. So I was always interested in doing this kind of research.
And the same happened with the Swiss Franc. When the central bank told me they don't have the data, I started to look for it. And it is amazing what data is not on the internet. There is so much in libraries, great books, and in archives. ⁓ And I found ⁓ a book, four floors underground, in the central library of Zurich. ⁓ A handbook.
Agustin Mackinlay (05:50)
Yeah
Ugh.
Costa Vayenas (06:08)
of foreign exchange rates from the 1500s. Yes, so you see all these nice things hidden underground and that set me on a path and then I found more. ⁓ So the next thing was to digitize this to find, to make this easier to work with.
Agustin Mackinlay (06:13)
Wow.
⁓ That's right.
All right. Now let's go back to present times and why don't you take us through the series of factors that up to the present help to explain the strength of the Swiss Franc. I'm thinking here of maybe neutrality, geopolitics. Tell us a little bit more about all of this.
Costa Vayenas (06:59)
Sure. So let me just say, I mean, at the most basic level for any currency in the world, you have supply and demand, right? If there's more demand than there is supply, then the currency will go up. And this is what we have with regard to the Swiss franc. And the question therefore is, know, so why is there more demand than there is supply? And when you look at supply factors,
So before neutrality and all these things, when you come to supply factors, can see ⁓ first of all, there is a balanced budget over the cycle. It's in the constitution. So there is relatively low government debt. If the balance cycle continues, the debt will eventually hit zero, right? So there's less demand, less supply just from say the fiscal story.
In terms of inflation, when you look at most central banks, most central banks have an inflation target of 2%. I ECB, Fed, and the Swiss Central Bank has a price stability target of 0 to 2. So, let's assume that the Swiss Central Bank hits the midpoint of its target of 0 to 2, which is 1. 2 minus 1.
Agustin Mackinlay (08:04)
Right.
Right.
Costa Vayenas (08:26)
means you have a gap of 100 bips per year. So just in terms of how different central banks are positioned, mechanically, mathematically, there's going to be more of the one and less of the other. So that's one important factor.
Agustin Mackinlay (08:42)
And you say in the book that over time, is when such differences count.
Costa Vayenas (08:47)
Yeah, they add up, they add up. know, 1 % or 1 % or 1 % over time, they can add up. And of course, the market anticipates this. Now, on your question of neutrality, so I look at all these different factors in this book when we go back to 1798. I think what helped Switzerland at that time was it was spared the wars
that affected the neighboring countries. The neighboring countries were ⁓ monarchies, ⁓ absolute monarchies in many cases for a long time. And those monarchies had huge expenditure, nice palaces. ⁓ They ⁓ subsidized great composers and writers, so they were very cultured. ⁓ And the Swiss didn't have that, that big expenditure.
And the other thing is these monarchies often were involved in wars, defending their territories. And war is very expensive. ⁓ And so Switzerland was kind of left out of that. ⁓ And so that obviously is an important factor. You know, if you can work without being disturbed, if you can make your watches and nobody's invading, then you can make more watches than if you have to stop and fight. So ⁓ that's
Agustin Mackinlay (10:13)
Right.
Costa Vayenas (10:17)
helped, certainly helped the context of, okay, so here is a country, it's not participating in wars, ⁓ not participating because the neighbors didn't want it to help the other side, right? So the neighbors would sign contracts saying, you don't fight with anyone else, you stay with us or you stay out. And so it was
Agustin Mackinlay (10:43)
That's right.
Costa Vayenas (10:46)
A neutrality that was actually kind of enforced. It wasn't that the Swiss were born with a neutral gene. It was that the outside world said, you know, we don't want you to allow people to travel through your passes, et cetera. So that obviously had a factor. And specifically with regard to currencies, when the Swiss franc was originally created, it was a metal coin, silver.
Agustin Mackinlay (11:02)
Right.
Costa Vayenas (11:16)
There was no banknotes. This was very different to some of the neighboring countries. Some of the neighboring countries used paper as well. And so from time to time, you would have ⁓ the suspension of convertibility from paper to gold. For example, even the Bank of England suspended convertibility in the Napoleon wars, And the Greenback.
Agustin Mackinlay (11:34)
Right.
In the Napoleon wars, yes.
Costa Vayenas (11:44)
there was a suspension of convertibility during the US Civil War. So here you have a dollar, but you can't convert it into gold. So ⁓ it wasn't a real gold system. And in contrast, Switzerland didn't have paper, just had these coins, ⁓ which was one factor, and crucially didn't have a central authority. They had many cantons.
And each canton wanted to have their own coins. And so that acted a little bit as a firewall between cantons. So if one canton messes up with its currency, it is a firewall against the whole country, right? Whereas in France, after the revolution, when they started printing ⁓ paper money, they had hyperinflation across the whole of France. So the fact that Switzerland had these little pieces
acted as a break. I mean, it had other inefficiencies, of course. But I'm answering your question about the origins and what kind of made it a place where people thought you can keep your treasure.
Agustin Mackinlay (12:47)
Absolutely.
Right, that's really interesting. I guess it takes us to one of the main points of the book, the issue of jurisdiction. There are a couple of very important sentences. One is, jurisdictions matter. And what you discuss here is the independence of the Swiss National Bank and more broadly the rule of law and the trust that it creates in terms of the
performance of contracts. So please explain a little bit more in detail why that why that matters so much.
Costa Vayenas (13:35)
So ⁓ in contrast to the situation that we have in the United States, Switzerland has no prime minister and no head of state. And so there's no one single person who's able to make very big decisions on their own. There are committees, there are groups. And specifically when we look at the policy of the central bank, and again I'd like to contrast it with this very strong executive in the United States,
where the president can say, he can express his views of course on monetary policy and that you know sometimes may create an expectation in the markets. If you look at the Swiss legislation, the instruction in Swiss law to the Swiss Central Bank is you are not allowed to ask anyone and number two you are not allowed to take advice from anyone.
Agustin Mackinlay (16:44)
right.
Costa Vayenas (16:44)
by anyone that identified
them as this government agency, this government, this cabinet, these government officials, right? So ⁓ now you say, they have that in the law. And would they ever need that? They don't need that, do they? But now we see with the United States, perhaps one day you might need it. ⁓ And so at least here, ⁓ you know,
Agustin Mackinlay (16:53)
Right.
Yep.
Costa Vayenas (17:13)
FX is relative. Relative supply and demand, relative inflation, differentials, it's all relative to something else. And so, relative to the United States, it is just a little harder to put political pressure onto the central bank. I don't know if it is, you know, secretly maybe possible, anything's possible, but it's just so much harder. There is no prime minister.
Agustin Mackinlay (17:22)
it.
Mm.
This is...
Costa Vayenas (17:41)
There's no head of state. There's no one person who could pick up the phone and tell the central bank, this is what I think is good. So that is a firewall. And the market, when you look at the kind of forward rates, the market appreciates that or builds it in.
Agustin Mackinlay (17:49)
That's
I guess I was about to take it there. I guess that helps to explain the high forward premium of the Swiss franc. We're talking about almost 4 % to the US dollar in one year forwards. We'll come back to that a little bit later on. But let's stick to the issue of jurisdiction. Because then in the book, there's yet another mention of the jurisdiction issue. But now...
Instead of being centered in the past and the present, you take it to the future. And it's a very bold step. say, jurisdictions will continue to matter, even in the world of tokenised and private money on a blockchain. ⁓ So tell us a little bit more about that. What are those, also the matter of jurisdictions into the future and
Costa Vayenas (18:49)
Yeah.
Agustin Mackinlay (18:56)
of course the future of the Swiss franc.
Costa Vayenas (18:58)
Yes. So why jurisdictions will continue to matter in the digital world, digital currencies, digital assets is at some point, at some point, the digital assets ⁓ meet with the fiat world, right? At some point that interaction happens and the people who own digital assets live on this planet. They travel.
around, they need to go to airports, and the jurisdiction where they choose to reside in determines their tax, right? And let's suppose they live in a completely tax-free jurisdiction. There may be inheritance taxes linked to that. ⁓ Anything's possible. The law keeps changing. So ⁓ there is this interaction between
the digital world and the fiat world. And the question then is, so where do you think your digital assets will be better protected as well? Where are they likely to be taxed away, confiscated? Things change. And the point about jurisdictions, therefore, is just let's think about it. Let's think about it. So we haven't escaped by owning something that's doing well in the digital world. We haven't escaped
where we live, where we plan to live, where we're to retire, how do we give this to our children perhaps, right? So there many factors that interact with the real world which makes jurisdictions really important. ⁓ And it also comes back to my chart of 5,000 years of interest rates, which is you could see which jurisdictions ended up having lower interest rates over time. And they tended to be
places where capital was flowing to. So that was kind of the connection. And it was just to address the argument that we can escape the real world by being fully digital somehow in our assets.
Agustin Mackinlay (21:10)
That's a great idea. really enjoyed that one when reading the book. Costa, let's discuss the resilience of the Swiss corporate world, Swiss companies in the face of the seemingly unstoppable appreciation of the Swiss franc. At Kantox, we are everyday developing solutions to tackle that issue, the high forward discount or premium of
of currencies and how to help corporate treasuries manage those interest rate differentials, be it in pricing, hedging, in swaps. And what we mostly do is, using API connectivity to create a corridor around the exchange rate and delay as much as possible execution of hedges. Each day that passes by,
Well, that shrinks the difference between the spot and the forward rate and diminishes in this case ⁓ hedging costs without, of course, ⁓ not losing sight of the risk management. But ⁓ you mentioned in the book, well, not exactly in that regard, but in terms of the resilience of companies, the fact that so many... ⁓
Swiss companies are among the most innovative ones. I think the country ranks number one in the global innovation index. And also, you discuss the strong export focus. So let's ⁓ talk about this. Innovation, the export focus, and the resilience of companies in the face of the strength of the Swiss Franc.
Costa Vayenas (23:02)
Yes. ⁓ So there several factors here. So the first, think, the Swiss franc affects the mindset of Swiss companies. And what is that mindset? That mindset is, ⁓ and if you look at the chart on the front page of the book, the currency is moving in one direction over a long time, right? And so we cannot, yeah, it's, you know, this is the fewer and fewer Swiss francs to buy one dollar.
The trend is clear. And the question then is like, so how are we going to make money? How are we going to survive? How are we going to export? How are we going to sell our stuff if that's the trend? Because what we know is the central bank is not going to help us. Central bank is not our friend in terms of helping the exporters, right? Of course, there will always be some lobby that tries to, know, in other countries,
You can lobby the president, you can lobby one person and something might happen. You can lobby the prime minister. In Switzerland, who will you lobby? It's hard to find them and bring them, put them in one room. So the central bank is unlikely to be the friend of exporters and that's what history shows. So then you need a plan B. And the plan B is, okay, so let us produce stuff that we think we can sell.
Agustin Mackinlay (24:11)
You
Costa Vayenas (24:31)
⁓ and people would be willing to pay, right? And when you go back in history, like the first product sold in China from Switzerland in the 1700s was watches, right? The imperial dynasty, the house there, they liked the watches, they bought them, so that's how the business started. And so you can see that you need to find products that you can carry over the mountains.
Agustin Mackinlay (24:45)
Watch yourself.
Costa Vayenas (25:00)
Switzerland has no access to the sea and you need products that people, when it reaches there, will survive and stay and they'll be willing to pay for. So that mindset influences everything when it comes to Swiss production exports. What should we base here? ⁓ What is the Swissness element and what can we base somewhere else, right?
So that mindset, I think in many countries I don't see that mindset. But here that mindset is really, really strong. And you can see that in terms of efforts at automation are very strong as well, right? So to give you one small example, in many countries when you go to the...
Agustin Mackinlay (25:52)
And we like
that when you use the term automation.
Costa Vayenas (25:54)
Yeah, in many countries when you go to the supermarket, there's somebody who's going to pack your bag for you or help you. Here there's nobody. You have to do that. You have to scan. You have to do that. In many countries when you go and fill up your car with petrol, there's somebody who will help you or do that. Here you have to get out of the car, do it yourself. So that mentality of like, we can't afford, we can't afford expensive people.
We have to find some automated way. We have to do something else. We have to cut costs. That is very strong in the mindset of everybody, farmers ⁓ and at all levels. ⁓ so, yeah, so your products will be of certain, people will be interested to hear how you can help them become even more efficient because as you say,
Agustin Mackinlay (26:38)
Right.
Costa Vayenas (26:52)
I mean, the trend is clear and there's this gap. Do you hedge it? At what price do you hedge? To hedge at 4%. Yeah, that's a lot, right?
Agustin Mackinlay (27:09)
That
is indeed a lot, and say at 12 or 13 percent against the Brazilian real and others. Now, continuing with this ⁓ idea of the resilience of Swiss companies, you also discuss in the book one topic that is a favorite of mine, the cost of capital. And here maybe a short comparison with Argentina is so, so interesting. If you think that jurisdictions do not matter,
Costa Vayenas (27:15)
Yeah.
Agustin Mackinlay (27:38)
Well, look at Argentinian bonds. They yield 3 % more for comparable securities in local jurisdiction than in bonds issued in New York. And if we continue the comparison, the Argentinian currency, believe it or not, has episodes of strength in markets. But here's the problem.
you have as an Argentinian company during those episodes of a strong currency or high cost of labor, but it's coupled with a high cost of capital. And that is totally unsustainable. You cannot have...
both high cost of labor and high cost of capital is going to create a perpetual fiscal crisis as you'll never be able to collect enough taxes to offset that impact. you say in the book that the idea of, of course, the Swiss national bank independence, the low inflation, low inflation expectations, helps companies
and in terms of the low cost of capital. Tell us more about this.
Costa Vayenas (28:54)
Yeah, sure. So you can see a strong ⁓ currency also brings benefits, right? So we've just discussed what are some of the problems you need to worry about being efficient and all that. But it also brings benefits. If the market believes that the currency is likely to appreciate over time, then
the market is willing to accept a lower interest rate because the market thinks it's going to be compensated through a strong currency over time. As you mentioned, the interest rate parity hypothesis. That interest rate parity hypothesis comes back over centuries. It's not something new. We have it from a century of data between Sterling and the French franc, for example. ⁓
Actually there's no free lunch over the long term, right? So there has to be some kind of compensation. And the compensation here in Switzerland is that for this appreciating currency, you're going to get low interest rates. ⁓ And current interest rates are zero. Central bank policy rate is zero. So that sets the base. ⁓ Everything above zero must represent a premium to something. ⁓
But that's a good start. So capital costs are low from that perspective. It then feeds through the whole economy. If the government can borrow at zero, if I think the 30-year bond is 0.3, it means they need less tax money to pay interest service. And fortunately, I don't.
Agustin Mackinlay (30:45)
That's right.
Costa Vayenas (30:51)
Did I mention the point that the budget has to be balanced over the cycle? Yes.
Agustin Mackinlay (30:58)
Yes, you did with
the law that was passed in the constitutional amendment, That was passed in 2005, I believe.
Costa Vayenas (31:03)
Yes, yes. And
okay, so what does that do? That means, yes, so what does that mean? That means even if the government can borrow at zero, there's a lock preventing politicians from going crazy, right? So the fiscal situation remains kind of pretty good. ⁓
Agustin Mackinlay (31:08)
The dead break.
Absolutely.
Costa Vayenas (31:30)
And that keeps interest rates down, keeps inflation down, keeps interest rates down. And that is the compensating factor that's very helpful for corporates, right?
Agustin Mackinlay (31:40)
Now,
⁓ Costa, you do mention another ⁓ benefit of the strong currency. And it reminds me of the saying by, I believe, the Swedish economist Abba Lerner, if you want to export, you need to import, right? And yes, of course, I looked at a recent report by Sika, a chemical manufacturer there in Switzerland.
We have ⁓ a bit of a currency headwind in terms of our sales, ⁓ remember we import, the cost of inputs goes down. That's another say, compensating effect, is it not?
Costa Vayenas (32:24)
Yes, so that's very powerful. what it means is your imported inputs tend to become cheaper and cheaper in Swiss francs over time, And that's very powerful because it means it gives you advantages. So for example, let's suppose you're producing chocolates. If you're able to buy cocoa at a lower price,
or at a lower price than Swiss francs. You might, because of the mentality issue, you might be persuaded to buy the best cocoa on the market, right? So you're like, okay, we're gonna produce chocolate, we're gonna compete with Belgium and many other interesting places. What can we do? Okay, you go for the best cocoa on the planet. so that's...
One advantage. Another advantage is if what you're paying, you're paying in dollars for example for American software and you're paying in dollars for advertising on Google or wherever you're advertising those dollar costs come down every year in Swiss francs. What does that mean? It means for the same amount of Swiss francs you can buy more advertising. Right? So, so
Agustin Mackinlay (33:49)
Yes. More technology,
more software.
Costa Vayenas (33:53)
More all of that, more
all of that, right? So it has this reinforcing effect that makes you more competitive or makes you want to be more competitive. Or you have to be, otherwise you're going to go out of business. So these factors are very helpful. Yeah.
Agustin Mackinlay (34:10)
Yeah, that's what look at one of the most interesting parts of the book all of those reinforcing effects. Of course, let's talk a little bit about the Swiss Franc and gold. Yeah, I think that there was a recent article in the Neue Züricher Zeitung ⁓ about ⁓ about your book. Is that right? And correct me if I'm wrong, but I think that in passage of the book, you say that if you take
compound interest. So the Swiss franc currency does very well even against gold, is of course one of the star assets in recent years.
Costa Vayenas (34:52)
Yes, so this was just to show, you know, there's this general view that says, you know, gold outperforms everything. Gold is so much stronger than currencies. And of course, there are long periods when that's the case. But I just wanted to show from 1836, which is when I was able to get interest rates, until 2025, this year in which gold did so well.
The Swiss franc including interest rates on an ordinary cash deposit outperformed gold over that long period. Why is that? Because you got compound interest. Of course, it was just an illustration because we don't make allowance for ⁓ tax. But just to show you that no, no, you can over certain times get ⁓ outperformed gold over very long periods.
And then there's an interesting phase. There's an almost 20-year phase in the early 90s where if you took Swiss francs and you put it under your mattress, so no interest, it outperformed gold over that period as well. obviously, know, that long-term trending gold is up. I'm not arguing against that. And gold is a great asset and important asset to hold. But I just want to show that there are phases
Agustin Mackinlay (36:06)
Mm-hmm.
Costa Vayenas (36:18)
and they can last for a long time without performance, under performance. And of course now we're very clearly in a very strong gold phase. But I just wanted to illustrate that what history showed.
Agustin Mackinlay (36:26)
Right.
When I finished the book, I couldn't help but notice that it was published in Wroclaw, in Poland. That's very interesting because it led me to a statement, think on page 103, outsource what can be done more cheaply elsewhere. Tell us a little bit more about that story.
Costa Vayenas (36:47)
Yes.
Yes, so I mean this is the beauty of the market, right? I discovered late that the book is actually published and printed in Poland, ⁓ was first of all a great surprise. ⁓ But secondly, also made me realize, well, it's kind of obvious, ⁓ Swiss printing costs, I'm sure, are a lot higher. ⁓
Agustin Mackinlay (37:00)
I printed, sorry, printed and bought.
Costa Vayenas (37:20)
Swiss laborers is more than elsewhere and all these things. So I'm extremely happy that the book is printed in an efficient market for printing. ⁓ And I didn't know that, I didn't choose that, but that shows you how the market can be super efficient in terms of, right, fine, you're going to do a book. This is done by this ⁓ provider. This is done by that provider. And here's your book. And then you look and you see, it was printed in Poland. ⁓
Agustin Mackinlay (37:30)
Right.
Costa Vayenas (37:48)
That shows the efficiency of markets as well, right? There are clearly areas in which Switzerland is not efficient ⁓ and it can be very irritating and part of that is agriculture. Another example is printing costs. So ⁓ that means, yeah, you're forced to just find the most efficient route.
Agustin Mackinlay (37:51)
That's right.
That's right. I take it also that now taking a broader view that you traveled recently to Poland, speaking of the book being printed there, but you were also quite pleasantly surprised by the way this country is evolving. We ourselves at Kantox have just opened an office in Warsaw. So discuss a little bit the Polish story for us.
Costa Vayenas (38:25)
Yes.
Yes.
Sure. So
Agustin Mackinlay (38:42)
perspective.
Costa Vayenas (38:44)
⁓ I didn't mention that before I worked at ⁓ UBS for 25 years, I covered emerging markets. ⁓ And Poland was part of that space because it happened to be in the index ⁓ for some of the assets. And so I always ⁓ visited Poland and kept an eye on Poland.
And it is remarkable what has happened there ⁓ in terms of ⁓ the growth and the entrepreneurial spirit in Poland is extremely strong. And you can see a return of confidence by Polish businesses that they realize that they have discovered how to make money in a very great way. And they're expanding and growing. And ⁓ it's... ⁓
It's a wonderful story actually. What is also of interest, what has also been of interest is, know, Poland has its own currency and it's kept its own currency. And one of the reasons that they liked that was that, you know, whenever you have a financial crisis or a crisis which we saw earlier, the currency can act as a shock absorber.
and that helped the economy in previous times. I was just wondering though on my more recent, on my recent visit, I was invited to a conference as you mentioned that was in Warsaw. It was obvious that ⁓ inflationary pressures were higher than in the euro area and the inflation peak was higher than the euro area. And so you can also see some of the downsides.
of not sharing the single currency. The upsides are clear, independence and shock absorber, but some of the downsides mean that you have higher interest rates and perhaps higher inflation expectations. And so one of the themes in Poland, despite that very positive story, was people talking about the appreciating real effective exchange rate of the Zloty is up quite a lot.
Agustin Mackinlay (40:36)
Right.
That's right.
Thank
Great.
Costa Vayenas (41:01)
And
they feel that. And so they hear the Swiss franc story, but they don't see how that immediately could apply to them because the real effective exchange rate moved up so quickly. And they're like, OK, so this is how we built our system. And now we're suddenly going to export at this higher level. So it's a challenge in Poland at the moment.
Agustin Mackinlay (41:24)
Yes, it is.
absolutely. Costa Vayenas, Chief Investment Officer at Genesis Investment Partners and author of The Swiss Franc from 1798 to 2055. We've covered a lot of grounds. I would have liked to continue this conversation, but we don't have that much time anymore. We discussed the books, the story of the Swiss Franc, the...
the factors behind its rise and rise. We discussed the comparison with gold and what Swiss companies could do in the face of the appreciating currency. So it was a broad discussion. Is there something that you would like to add, Costa?
Costa Vayenas (42:12)
⁓ Well, a general statement I would make is that the book found interesting data in the archives, and so there's lots of interesting books and things in the archives. Don't ignore the libraries, don't ignore the archives. Not everything is on the internet, and there's some great opportunities to look for interesting aspects there. That would be one factor. And the second factor I'd say is,
Everybody can, ⁓ all entrepreneurs can think about how to improve efficiency. ⁓ And because as we see in the case of Poland, the real effective exchange rate could move very suddenly. ⁓ And so thinking about costs ⁓ and what you can do to become more efficient is something that all of us can do.
Agustin Mackinlay (43:04)
Right. And on that note, we are going to leave it here, but I'm sure we'll have another opportunity to talk to you. Costa Vayenas, thanks a lot and see you soon.
Costa Vayenas (43:16)
Thank you so much, Agustin, for finding me and for reading my book. Thank you.
