Published 9/12/2011
Last week the Swiss National Bank suddenly announced that it was “no longer going to tolerate a EUR/CHF exchange rate below the minimum rate of CHF1.20.” Just before the announcement the franc had been trading at CHF1.10, so it represented a devaluation of about 9%. The Swiss Franc had been as strong as parity about a month before the move, so the decision appears to have been based on more than simple currency over-valuation.
The SNB definitely has a problem. Switzerland is a successful economy surrounded by nations in a currency union that threatens to disintegrate. Essentially, Switzerland’s success is out of step with the rest of Europe. This is obvious, but the motivations for central banks are rarely stated plainly, and there is usually more to an action such as this than meets the eye. .......
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