SNB Intervention Causes Franc’s Collapse
The franc records a sharp decline against the euro and the dollar, as the Central Bank of Switzerland intervene in the forex market and sets a ceiling for the franc at 1.20 francs to euro to weaken the Swiss currency.
Swiss National Bank announced that it will proceed with the purchase of unlimited quantities of foreign currency to “restrain” the Swiss franc, as market turbulences have increased risk aversion and led to significant capital flows, hitting exports.
Moreover, Swiss National Bank said in a statement:
“The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.
The Swiss National Bank (SNB) is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.
Even at a rate of CHF 1.20 per euro, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflationary risks so require, the SNB will take further measures.”
"It took a couple of days to show that the SNB was serious about its unlimited intervention, but then the strategy worked fine," said Tobias Straumann, an economic historian and professor at the University of Zurich.
Foreign-exchange markets were much smaller then, and in pushing the franc lower against the mark, the SNB was only dealing with the currency of one country, rather than with the euro, which represents half of Europe.
(capital.gr)
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