10th August 2011
The move by the Swiss National Bank, the second time in a week it has stepped into foreign exchange markets, followed the franc's biggest one-day gain against the dollar for at least 30 years.
The franc rose to a record high of SFr0.7085 versus the US currency on Tuesday, after the Federal Reserve said it would extend loose monetary policy until at least mid-2013.
Mindful Money economist blogger Shaun Richards comments on the Swiss Franc's "extraordinary surge" this week on his blog: "For perspective I looked at its level over the past few years and the annual averages from 2007 onwards for it versus the pound are 2.40,1.9986,1.696 and 1.6093. However by the beginning of this year the pound had fallen to 1.4776 and right now it is 1.174. So if we look back to compare with 2007′s average exchange rate it has more than halved."
But what newspaper reports have failed to pick up on is the pain felt by Eastern Europe as a result of this.
Shaun comments on his blog: "For Hungary there is an even worse problem as her government insured mortgage holders against the rise of the Swiss Franc above a certain level which is analagous to selling a call option. So the national finances will now be under challenge. Poland as a nation has 5.2 billion of Swiss Franc borrowing as a nation which is getting ever harder to repay…
"Putting this another way the monetary policy of Switzerland is more important for Hungary and Poland than that of their own central Banks."
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