Category Archives: Contributions

Have Banks Become Less Risky?

In BPEA, Natasha Sarin and Larry Summers argue that bank stock has not:

… we find that financial market information provides little support for the view that major institutions are significantly safer than they were before the crisis and some support for the notion that risks have actually increased. …

… financial markets may have underestimated risk prior to the crisis … Yet we believe that the main reason for our findings is that regulatory measures that have increased safety have been offset by a dramatic decline in the franchise value of major financial institutions, caused at least in part by these new regulations.

This table is taken from their paper:

bpea-fall-2016-web-sarin-new

However, their finding need not be as bad as it sounds. After all, bank regulators intended to insulate taxpayers against bank failure and to render the financial system more shock proof, not bank equity.

How Does the Blockchain Transform Central Banking?

The blockchain technology opens up new possibilities for financial market participants. It allows to get rid of middle men and thus, to save cost, speed up clearing and settlement (possibly lowering capital requirements), protect privacy, avoid operational risks and improve the bargaining position of customers.

Internet based technologies have rendered it cheap to collect information and to network. This lies at the foundation of business models in the “sharing economy.” It also lets fintech companies seize intermediation business from banks and degrade them to utilities, now that the financial crisis has severely damaged banks’ reputation. But both fintech and sharing-economy companies continue to manage information centrally.

The blockchain technology undermines the middle-men business model. It renders cheating in transactions much harder and thereby reduces the value of credibility lent by middle men. The fact that counter parties do not know and trust each other becomes less of an impediment to trade.

The blockchain may lend credibility to a plethora of transactions, including payments denominated in traditional fiat monies like the US dollar or virtual krypto currencies like Bitcoin. An advantage of krypto currencies over traditional currencies concerns the commitment power lent by “smart contracts.” Unlike the money supply of fiat monies that hinges on discretionary decisions by monetary policy makers, the supply of krypto currencies can in principle be insulated against human interference ex post and at the same time conditioned on arbitrary verifiable outcomes (if done properly). This opens the way for resolving commitment problems in monetary economics. (Currently, however, most krypto currencies do not exploit this opportunity; they allow ex post interference by a “monetary policy committee.”) A disadvantage of krypto currencies concerns their limited liquidity and thus, exchange rate variability relative to traditional currencies if only few transactions are conducted using the krypto currency.

Whether blockchain payments are denominated in traditional fiat monies or krypto currencies, they are always of relevance for central banks. Transactions denominated in a krypto currency affect the central bank in similar ways as US dollar transactions, say, affect the monetary authority in a dollarized economy: The central bank looses control over the money supply, and its power to intervene as lender of last resort may be diminished as well. The underlying causes for the crowding out of the legal tender also are familiar from dollarization episodes: Loss of trust in the central bank and the stability of the legal tender, or a desire of the transacting parties to hide their identity if the central bank can monitor payments in the domestic currency but not otherwise.

Blockchain facilitated transactions denominated in domestic currency have the potential to affect central bank operations much more directly. To leverage the efficiency of domestic currency denominated blockchain transactions between financial institutions it is in the interest of banks to have the central bank on board: The domestic currency denominated krypto currency should ideally be base money or a perfect substitute to it, directly exchangeable against central bank reserves. For when perfect substitutability is not guaranteed then the payment associated with the transaction eventually requires clearing through the traditional central bank managed clearing mechanism and as a consequence, the gain in speed and efficiency is relinquished. Of course, building an interface between the blockchain and the central bank’s clearing system could constitute a first step towards completely dismantling the latter and shifting all central bank managed clearing to the former.

Why would central banks want to join forces? If they don’t, they risk being cut out from transactions denominated in domestic currency and to end up monitoring only a fraction of the clearing between market participants. Central banks are under pressure to keep “their” currencies attractive. For the same reason (as well as for others), I propose “Reserves for All”—letting the general public and not only banks access central bank reserves (here, here, here, and here).

Banking on the Blockchain

In the NZZ, Axel Lehmann offers his views on the prospects of blockchain technologies in banking. Lehmann is Group Chief Operating Officer of UBS Group AG.

New possibilities:

  • Higher efficiency; lower cost; more robustness and simpler processes; real-time clearing;
  • no need for intermediaries; information exchange without risk of interference
  • automated “smart contracts;” automated wealth management;
  • more control over transactions; better data protection;
  • improved possibilities for macro prudential monitoring.

Challenges:

  • Speed; scalability; security;
  • privacy;
  • smart contracts require new contract law;
  • interface between traditional payments system and blockchain payment system.

Lehmann favors common standards and he points out that this is what is happening (R3-consortium with UBS, Hyperledger project with Linux foundation).

Related, Martin Arnold reported in the FT in late August that UBS, Deutsche Bank, Santander, BNY Mellon as well as the broker ICAP pursue the project of a “utility settlement coin.” Here is my reading of what this is:

  • The aim seems to be to have central banks on board; so USCs might be a form of reserves (base money). The difference to traditional reserves would be that USCs facilitate transactions using distributed ledgers rather than traditional clearing and settlement mechanisms. (This leads to the question of the appropriate interface between the two systems posed by Lehmann.)

But what’s in for central banks? Would this be a test before the whole clearing and settlement system is revamped, based on new blockchain technology? Don’t central banks fear that transactions on distributed ledgers might foster anonymity?

Should the Fed Reduce the Size of its Balance Sheet?

On his blog, Ben Bernanke discusses the merits of the Fed’s strategy to slowly reduce the size of its balance sheet to pre crisis levels. Bernanke (with reference to a paper by Robin Greenwood, Samuel Hanson and Jeremy Stein) suggests that this strategy should be reconsidered:

First, the large balance sheet provides lots of safe and liquid assets for financial markets. This might strengthen financial stability. (DN: In my view, there are also reasons to expect the opposite.)

Second, a larger balance sheet can help improve the workings of the monetary transmission mechanism, in particular if non-banks can deposit funds at the Fed. Currently, the Fed accepts funds from private-sector institutional lenders such as money market funds, through the overnight reverse repurchase program (RRP). (DN: I agree. As I have argued elsewhere, access to central bank balance sheets should be broadened.)

Third, with a large balance sheet and thus, large bank reserve holdings to start with, it could be easier to avoid “stigma” in the next financial crisis when banks need to borrow cash from the Fed but prefer not to in order not to signal weakness. (DN: Like the first, this third argument emphasizes banks’ needs. In my view, monetary policy should not emphasize these needs too much because it is far from clear whether bank incentives are sufficiently aligned with the interests of society at large.)

Bernanke also discusses the reasons why the Fed does want to reduce the balance sheet size.

First, in a financial panic, programs like the RRP could result in market participants depositing more and more funds at the Fed until the interbank market would be drained of liquidity. But these programs could be capped.

Second, a large balance sheet increases the risk of large fiscal losses for the Fed and thus, the public sector. Losses could trigger a legislative response and undermine the Fed’s policy independence. But these risks could be kept in check if the Fed invested in government paper that constitutes a close substitute to cash, such as three year government debt. (DN: But why, then, shouldn’t financial market participants hold three year government debt rather than reserves at the Fed? Because cash is much more liquid than government debt … But what does this mean?)

Reserves For Everyone

On a new website, Aleksander Berentsen rejects the Swiss Vollgeld initiative. As an alternative, he suggests the Swiss National Bank should offer transaction accounts for everybody, in line with proposals I have made earlier (see here (2016), here (2015), here (2015)).

In the Handelszeitung (here and here), Simon Schmid reports.

Economics: The Core

The Economist reviews core ideas in economics. The introductory article to a new series points out that

economists’ fundamental mission is not to forecast recessions but to explain how the world works.

It argues that economists have delivered and it discusses six exemplary areas of economic research:

  • Nash equilibrium (article, August 20);
  • Mundell-Fleming trilemma (article, August 27);
  • Minsky financial instability (article, July 30);
  • Stolper-Samuelson trade effects on wages (article, August 6);
  • Keynes fiscal multiplier (article, August 13); and
  • Akerlof et al information asymmetries (article, July 23).

Refreshingly, the article argues that

[t]hese breakthroughs are adverts not just for the value of economics, but also for three other things: theory, maths and outsiders.

I agree. But the value of economics also derives from more elementary insights, related to, for example,

  • budget and resource constraints;
  • the information content of prices;
  • public choice; or
  • the link between monetary aggregates and the general price level.

Today, these latter insights might appear even more trivial than those picked by The Economist. But they are central, and emphasizing them might lead to different policy conclusions than the common focus on economic frictions and aggregate demand.

“Geldpolitik soll eigenständig bleiben (Monetary Policy Independence),” FuW, 2016

Finanz und Wirtschaft, July 20, 2016. PDF. Ökonomenstimme, July 29, 2016. HTML.

In a perfect world, monetary and fiscal policy are coordinated. In the real world with its political frictions they are not. So much on helicopter money.

Commitment within Reach, Part II

The Economist reports about cyber thieves “outsmarting” a smart contract.

Well, what does that mean? Engaging with a code that runs in all states of the world is to engage with a complete contract. How can one outsmart a complete contract?

Previous post on smart contracts and commitment.

“Dirk Niepelt über die Folgen eines Brexit für die Schweiz (What Brexit Means for Switzerland),” SRF, 2016

SRF, Tagesgespräch, June 16, 2016. HTML with link to MP3.

  • Half-hour-long interview on the Swiss news channel.
  • Topics include monetary policy, exchange rates, financial stability, Brexit.

“Elektronisches Notenbankgeld ja, Vollgeld nein (Reserves for All, But no Sovereign Money),” NZZ, 2016

Neue Zürcher Zeitung, June 16, 2016. PDF, HTML. Ökonomenstimme, June 17, 2016. HTML.

  • Vollgeld seems attractive because it decouples the supply of money from intermediation. By enabling everyone to use legal tender for electronic payments, electronic base money would satisfy a need.
  • Vollgeld would prevent bank runs, at least partly; render deposit insurance unnecessary and reduce moral hazard; could help stabilize the credit cycle; and would redistribute seignorage to the central bank.
  • But these objectives can be obtained with less intrusive means.
  • Moreover, a Vollgeld system would be hard to enforce. Banks and their clients would establish new means of payment to circumvent the regulation. And in times of crisis, the central bank would feel obliged to provide liquidity assistance and bail outs.
  • The central problem is not that private money is used for transactions; it rather is that the money’s users rely on the central bank to guarantee the substitutability of private money and base money. In a democracy, the central bank cannot credibly let large parts of the payment system go under.
  • A sudden, forceful change of regime does not offer a credible way out of this trap.
  • But letting the general public access central bank reserves without abolishing private money from one day to the other may open a path towards a new arrangement where the public learns to distinguish between private and base money and where only the latter is publicly guaranteed.

Commitment Against Alchemy?

In the FT, Martin Wolf discusses Mervyn King’s proposal to make the central bank a “pawnbroker for all seasons” as laid out in King’s recent book “The End of Alchemy.”

Lord King offers a novel alternative. Central banks would still act as lenders of last resort. But they would no longer be forced to lend against virtually any asset, since that very possibility must create moral hazard. Instead, they would agree the terms on which they would lend against assets in a crisis, including relevant haircuts, in advance. The size of these haircuts would be a “tax on alchemy”. They would be set at tough levels and could not be altered in a crisis. The central bank would have become a “pawnbroker for all seasons”.

The key part of this quote is “could not be altered in a crisis.” Central banks and governments have always found it very difficult to commit not to support systemically (or politically) important players ex post. This problem lies at the heart of many problems in the financial system and elsewhere. By assuming that central banks could commit under the proposed arrangement, the proposal abstracts from a key friction.

Commitment within Reach

In the FT, Richard Waters reports about the advent of the automated company.

The DAO — an acronym of decentralised autonomous organisation, the name given to such entities — has been set up to invest in other businesses, making it a form of investor-directed venture capital fund. … The organisation is governed by a set of so-called smart contracts which run on the Ethereum blockchain, a public ledger designed to make its operations transparent and enforceable.

In other words, the code provides a commitment mechanism. Imagine a world where government interventions can be encoded in a similar way. This could open the way for solving a central problem of democratic societies: The time inconsistency of optimal government plans.

“Zinsen, Inflation und Realismus (Interest, Inflation and Realism),” FuW, 2016

Finanz und Wirtschaft, April 30, 2016. PDF. Ökonomenstimme, May 6, 2016. HTML.

The winners and losers of the current monetary environment are not that easy to identify. Investors holding long-term, non-indexed debt gain as unexpectedly low inflation shifts wealth from borrowers to lenders. Governments suffer from increased real debt burdens and reduced revenue due to effectively lower capital income tax rates. Policies that succeed in affecting the real exchange rate entail redistribution.

Mathias Binswanger’s “Money Out of Nothing”

In his recent book Geld aus dem Nichts (Money out of Nothing), Mathias Binswanger discusses the role of banks in creating money, and money’s role in affecting the macro economy. The book is written for a non specialist audience and the arguments are often quite loose.

In the first part of the book, Binswanger describes how money mostly is created by commercial rather than central banks.

Part II provides a nice historical overview. Binswanger describes the origins of modern banking with goldsmiths first storing gold for their merchant clients, then lending some of the stored gold to third parties, and finally issuing more “receipts” than what corresponds to the gold deposits they actually accepted. From there, he argues, it was a small step to state licensed national banks like the Bank of England. On p. 120 Binswanger describes how minimum reserve requirements got out of fashion, not least because they suffered from circumvention when they were binding.

Part III lacks precision and is misguided (see also pp. 30 or 66). It covers the link between money creation and growth but confuses national accounting concepts and their relation to money and credit. Clearly, growth can occur without credit (think of an economy with just one agent to see this most directly) but Binswanger seems to dispute this point, in line with earlier writings by his father. A “model” on p. 144 does not help to clarify his views because it is orthogonal to the argument. Binswanger criticizes mainstream economics for refusing to accept the presence of long-run links between money and growth but this critique remains vain. Part IV deals with money creation and its effect on financial markets.

Part V, on reform, is sensible. Binswanger rejects proposals to move (back) to the gold standard or a 100%-money regime (or, essentially equivalent, “positive money”). His arguments against the Swiss “Vollgeld” initiative resonate with points I made here and elsewhere, including the point that it would be difficult to enforce a “Vollgeld” regime (see also p. 122). Binswanger criticizes the “Vollgeld” initiative’s vagueness concerning actual implementation of monetary policy. He ends with more limited, rather standard proposals (relating to regulation, monetary policy objectives and capital requirements) to address problems in financial markets.

“Neue Geldpolitik, alte Optionen (New Monetary Policies, Old Policy Options),” FuW, 2016

Finanz und Wirtschaft, January 20, 2016. PDF. Ökonomenstimme, January 21, 2016. HTML.

The public’s perception of central banks has changed during the crisis—and has created expectations that cannot be met. Beyond the buzzwords, the fundamental options for monetary policy makers are the same as always.

Show Me The Model

Three opinion leaders in the blogosphere have laid out how they think about the macroeconomy. They talk about “models” but unfortunately don’t deliver. Instead, they provide lists of beliefs or facts to be explained. Economics is a science precisely because it has progressed beyond such lists. Economists build models—consistent, well-structured and clearly specified (and thus, mathematically formulated) stories.

But here are the lists: Scott Sumner’s “Musical Chairs model” (blog):

In the short run, employment fluctuations are driven by variations in the NGDP/Wage ratio.

Monetary policy drives NGDP, by influencing the supply and demand for base money.

Nominal wages are sticky in the short run, and hence NGDP shocks cause variations in employment in the same direction.

In the long run, wages are flexible and adjust to changes in NGDP. Unemployment returns to the natural rate (currently about 5% in the US.)

Tyler Cowen’s “model” (blog):

In world history, 99% of all business cycles are real business cycles.  No criticism of RBC can change this fact.  Furthermore the propagation mechanism for a “Keynesian business cycle” (arguably a misleading phrase) also relies on RBC theory.

In the more recent segment of world history, a lot of cycles have been caused by negative nominal shocks.  I consider the Christina and David Romer “shock identification” paper (pdf, and note the name order) to be one of the very best pieces of research in all of macroeconomics.  Sometimes central banks tighten when they shouldn’t, and this leads to a recession, due mainly to nominal wage stickiness.

Workers are laid off because employers are often (not always) afraid to cut their nominal wages, for fear of busting workplace morale, or in Europe often for legal and union-related reasons.

Overall I favor a nominal gdp rule for monetary policy.  But most of its gains would come in a few key historical episodes, such as 1929-1932, or 2008-2009.  In most periods I don’t think we know what the correct monetary policy should be, nor do we know that it matters.  Still, that uncertainty does not militate against an ngdp rule.

Once workers are unemployed, nominal wage stickiness is no longer the main reason why they stay unemployed.  In fact nominal wage stickiness is largely taken out of the equation because there is no preexisting nominal wage contract for these workers.  There may, however, be some residual stickiness due to irrational reservation wages, also known as voluntary unemployment due to stupidity.  (You will find a different perspective in Scott’s musical chairs model, which I may cover more soon.)

Monetary stimulus to be effective needs to be applied very early in the job destruction process of a recession.  It is much harder to put the pieces back together again, so urgency is of the essence.

The successful reemployment of workers depends upon a matching problem, a’la Pissarides, Mortensen, and others.  Yet this matching problem is poorly understood, and it can involve a mix of nominal and real imperfections.  Sometimes it is solved more quickly than expected, such as in the recent UK experience, and other times more slowly than expected, as in current Spain.  Most of the claims you will read about this reemployment of workers are wrong, enslaved to ideology or dogmatism, or at the very least unjustified.  Hardly anyone wants to admit this.

Really bad recessions involve deficient aggregate demand, negative shocks to intermediation, some chronic supply-side problems, negative wealth effects, and increases in the risk premium, all together.  It is hard to find a quick fix.  Furthermore models where AS and AD curves are independent and separable are often misleading, despite their analytic convenience.

Given that weak AD is only one of the problems in a bad downturn, and that confidence, risk, and supply side problems matter too, the best question to ask about fiscal policy is how well the money is being spent.  The “jack up AD no matter” approach is, in the final political equilibrium, not doing good fiscal policy any favors.

You should neither rule out nor overstate the relevance of Hayek and Minsky.  Their views have much in common, despite the difference in ideological mood affiliation and who — government or the market — gets blamed for the downturn.  For really bad recessions, usually both institutions are complicit to say the least.

All propositions about real interest rates are wrong.

The Economist’s Free Exchange response to Cowen’s model (blog):

Supply-side policy is hard. Why is America the richest large economy in the world? Well, because output per person has grown at about 2% per year, on average, for a very long time. How did it manage that? I have a long list of policy choices and characteristics and historical accidents that I believe contributed, but I would find it very difficult to say which of those factors were most important. If someone gave me free reign over the German economy and asked me to raise its output per person to American levels, I know the sorts of things I would do, but I have a low level of confidence that I could succeed, or even close much of the gap, within a generation.

That doesn’t mean that supply-side policy should be ignored. Supply-side reforms (of the sort this newspaper tends to favour) are politically difficult to achieve, but many of them are probably at least somewhat useful and should be undertaken whenever the political environment is amenable (though with very modest expectations regarding detectable effects on growth).

With supply-side policy, the precision of a policy action is not the problem; accuracy is. With demand-side policy, it is the opposite: it is pretty easy to meet broad policy goals, so long as you’re not too concerned about hitting them square on the nose.

We know what an economy with way too much demand looks like. It has high and accelerating inflation.

We know what an economy with way too little demand looks like. It has high unemployment and deflation.

Within those two extremes, it can be tricky to identify exactly where an economy stands: how close or far away from potential output it is.

Both too much and too little demand are economically costly, but history suggests that too little demand is far more economically costly and politically risky than too much demand. So policy should err on the side of too much demand rather than too little.

The determined use of monetary policy is almost always going to be sufficient to generate the right sort of “too much demand”. But an independent central bank might not always be able to muster the appropriate determination. In some cases a central bank may flounder until a clear political consensus emerges supporting the determined use of monetary policy.

It is generally unwise for countries to sacrifice monetary-policy autonomy, either by adopting a constraining exchange-rate regime or by introducing an excessive level of capital-account openness.

In countries with autonomous monetary policy, which are stuck at the zero lower bound on interest rates, fiscal policy is almost by definition too tight, and it is probably quite difficult to conduct fiscal stimulus in a way that generates long-run economic costs. That is because the long-run supply-side and fiscal benefits of getting off the ZLB are probably pretty large.

Fiscal policy is subject to political constraints, and it may be easier to introduce a large stimulus in emergency situations if the pre-emergency public-debt burden is low. That suggests that prudence in normal times is a good idea (though do remember point number 10).

Don’t subsidise debt.

The level of financial- and banking-sector liberalisation at which it can be demonstrated persuasively that further liberalisation will generate net benefits is probably not that high.

“Fiskalunion auf tönernen Füssen (Fiscal Union on Shaky Grounds),” FuW, 2015

Finanz und Wirtschaft, October 7, 2015. PDF. Ökonomenstimme, October 9, 2015. HTML.

Fiscal union proposals are not convincing:

  • Enforcement should be key but remains weak.
  • Monitoring and counteracting of “imbalances” is dubious.
  • Subsidiarity is important.

PS: In the FT (October 18), Wolfgang Münchau reaches a similar conclusion albeit from a different starting point: “Better no fiscal union than a flawed one.”

“Institutionelle Schwächen der EU (Institutional Problems in the EU),” FuW, 2015

Finanz und Wirtschaft, July 15, 2015. PDF. Ökonomenstimme, July 16, 2015. HTML.

The collapse in Greece is a consequence of major institutional problems:

  • Political decision makers in Berlin, Paris, Brussels, Frankfurt and Washington didn’t follow the rules. This seemed optimal ex post, but is suboptimal ex ante (see Kydland and Prescott).
  • The ECB’s mandate is unclear.
  • The monetary system is fragile.

“Der starke Franken (Strong Swiss Franc),” SRF, 2015

“Der starke Franken: Des einen Freud, des anderen Leid,” SRF 4 News, July 15, 2015. HTML, AUDIO.

  • Who knows whether the Franc is overvalued.
  • The SNB lost credibility in the short run (and this renders reinstating an exchange rate floor difficult), but not in the long run.
  • Some of the current problems are problems of distribution. The SNB may not be the appropriate institution to address them.
  • Switzerland wants an independent monetary policy. Here are some disadvantages.

The Euro/Swiss Franc Exchange Rate

Was it wise for the Swiss National Bank (SNB) to abandon the exchange rate floor vis-a-vis the Euro (EUR) half a year ago (see the blog entry on the decision and on the critique by Willem Buiter)?

Here are some considerations to keep in mind.

  • Is the Swiss France (CHF) overvalued? The following graph plots the nominal and real exchange rates since 1981 (the real rate is computed based on Swiss and Euro area producer price indices, 2010=100; data file).
    chf eur nom real exch rate
    Relative to the long-term average, the CHF currently is overvalued in real terms by 14%. In December 2014, it was overvalued by 4%; and in August 2011, by 11%. But in December 2007, it was undervalued by 21%. According to the real exchange rate metric, importers (households) thus suffered more in 2007 than exporters suffer today. For a related assessment based on consumer (Big Mac) prices, see this blog post.
  • The real exchange rate is just one metric to assess whether a currency is overvalued. There are many others, see for example this IMF paper or this book. Also, foreign exchange market participants are willing to buy and hold CHFs and EURs at the going market rate; they seem to think that the price is right.
  • If the price were right and policy weakened the CHF, then Switzerland would trade off “competitiveness” of the export sector on the one hand, and expected capital losses on the country’s EUR holdings that would have to be purchased to temporarily strengthen the EUR on the other. Back-of-the-envelope calculations by my colleague Harris Dellas suggest that weakening the CHF would not be worth it, financially speaking.
  • Even if, for whatever reason, society favored a weaker CHF it is not clear that the SNB should intervene. The SNB should only act if its mandate of pursuing price stability calls for such action. In the short run, a weaker CHF would indeed help to push the inflation rate in the desired range. In the longer run, however, a further lengthening of the SNB’s balance sheet (resulting from forex market interventions) could undermine the SNB’s flexibility, in particular if political constraints were to bind.
  • This does not rule out, however, that other institutions in Switzerland could or should enter the exchange rate business. In principle, fiscal policy makers could institute a sovereign wealth fund that is financed by issuing CHF bonds and invested in EUR assets. Fiscal policy makers could also try to redistribute from those currently benefiting to those suffering from the CHF/EUR exchange rate. Export subsidies could be an instrument. They would be hard to implement though if one wanted to account for intermediate inputs.
  • That Switzerland has an independent currency is a choice that reflects repeated, in depth deliberations. Advantages of pursuing an independent monetary policy include the option value to pursue price stability even if other currency blocs don’t; and the ensuing credibility benefits for Switzerland as a whole. Disadvantages include temporary, but potentially long-lasting real exchange rate misalignments that strain some groups (e.g., workers in the export sector) while benefiting others (e.g., consumers). These advantages and disadvantages do not come as a surprise; Switzerland has chosen them.