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Franc Soars After Swiss Drop a Cap on Its Value
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The Swiss National Bank gives up on its effort to maintain Swiss competitiveness by dropping the 2011 peg of 1.2 euros to the franc. That effort was becoming costlier as the central bank piled up hundreds of millions of euros on its balance sheet buying up euros to keep the value of the franc down. Investors have put money into francs as a safe haven since the 2008 financial crisis. By offering negative yields of 0.75% the central bank hoped to limit the damage with a surging franc. The franc went up by 15% on January 15, 2015, with the surprise announcement, and stocks of exporters declined sharply. The immediate decision was taken as the ECB planned to weaken the euro with a large quantitative easing program in its Dec. 22, 2015 meeting. The central bank said - "Recently the divergences between the monetary policies of the major currency areas have increased significantly- a trend that is likely to become even more pronounced." A December Swiss initiative was intended to force the Swiss National Bank to convert much of its foreign exchange holdings into gold, as public criticism of the large euro holdings increased with each currency market intervention. The SNB justified its peg to the euro and currency interventions saying that this gave the country's exporters time to make the transition to a stronger Swiss franc.
Swiss National Bank
01/06/2014
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The Swiss National Bank's decision on Jan. 14, 2015, to drop the 2011 peg of 1.2 euros to the franc, and reduce interest rates to negative 0.75%
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The Swiss National Bank gives up the effort to maintain the 2011 peg of 1.2 euros to the franc, as the anticipated ECB action for the Jan. 22 ECB meeting to weaken the euro further draws near. By offering negative yields on deposits of francs the bank plans to reduce the attractiveness of the franc as a safe haven. The Swiss franc surged by 15%, stock of exporter Swatch dropped 16% and the Swiss Stock Exchange showed a decline of 9%. Stocks of Nestle and Novartis, other exporters, also declined.
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The Swiss National Bank, Switzerland's central bank, and policy to preserve Swiss competitiveness
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The Swiss central bank is intervening in currency markets to keep the Swiss Franc at 1.20 to the euro, a peg set in Sept. 2011. The all out effort reaching the size of Swiss GDP by 2013 is designed to preserve Swiss export competitiveness.
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