Currency Wars – Swiss National Bank Promises to Devalue Currency
Currency Wars - Swiss National Bank Promises to Devalue Currency
The Swiss National Bank intends to uphold the Franc to Euro unofficial currency peg. The Swiss have been buying billions of Euros Daily in order to this. The end effect is that the SNB has become yet another printing press flooding the world with paper. Switzerland is firm on it’s stand of keeping the swiss franc at low exchange rate, as bigger appreciation of the currency may affect negatively the Swiss Economy as well as the risk of Deflationary consequences.
Taken from Financial Times:
Swiss bank vows to hold franc down
The head of the Swiss National Bank has vowed to continue its policy of halting rises for the franc against the euro and has warned that a stronger currency would be a “substantial threat” to Switzerland’s export-dependent economy.
Thomas Jordan, in a speech in Zurich on the challenges for Switzerland as a financial centre, warned of the negative effect of the eurozone crisis and the damage to the Swiss economy that a stronger franc could create.
“In the current situation, a further appreciation of the Swiss franc would constitute a very substantial threat to the Swiss economy and would carry with it the risk of deflationary developments,” Mr Jordan said.
“With this in mind, we will continue to enforce the minimum exchange rate with the utmost determination.”
He added that economic uncertainty in the eurozone was of “great concern” to Switzerland and the bank, underlining the role of the franc policy as an attempt to reduce the negative implications for the country.
Mr Jordan’s comments were made almost a year after the SNB introduced its policy of keeping the franc weak by maintaining an exchange rate of SFr1.20 against the euro.
The move, introduced on September 6 last year, was put in place following overwhelming demand for Swiss assets from foreign investors seeking a haven amid the eurozone crisis.
The SNB was viewed as so credible in the markets that its franc policy was not tested until May, when growing fears that Greece could leave the eurozone prompted fresh demand for the currency.
The central bank has since spent tens of billions each month buying euros to weaken the franc and hold the exchange rate at SFr1.20.
That has helped the SNB’s foreign currency reserves to rise to record levels. The most recent figures show SFr406bn ($425.9bn) in forex reserves on its balance sheet at the end of July, an increase of 71 per cent over a three-month period.
However, foreign currency analysts believe the foreign exchange reserve figures for August, due to be published in coming days, will show that the pressure on the SNB has abated in recent weeks amid a period of relative optimism over the euro.
UBS analysts pointed to a slowdown in weekly deposit data at the bank during August, in contrast with higher weekly inflows in June and July.
The forthcoming anniversary of the bank’s decision to set a ceiling for the franc has prompted questions over how much longer it can continue with the costly policy.
“We expect the SFr1.20 floor to hold indefinitely, notwithstanding the build-up of foreign exchange reserves,” Credit Suisse analysts wrote in a note on Monday.