Swiss National Bank fails to peg currency

18th August 2011

Switzerland's central bank announced further measures to weaken the franc, but failed to take the anticipated step of pegging the franc to the euro to discourage safehaven investors.

Ian King comments in the Times : "At least the euro is proving good for one thing; it is ironic that, despite all the Swiss National Bank's tough talk, the only thing that actually seems to have brought down the Swiss franc's value during the last fortnight has been the threat of pegging it to the single currency.

"When that threat proved yesterday to be groundless, with the SNB backing away from a peg, up went the Swissie again."

What will happen if the SNB continues to sit on its hands?

Mindful Money blogger Shaun Richards says on his blog: "…bad timing for the SNB as its talk of "further measures" makes it sound like a Euro zone announcement. So we are left with a response from an economics textbook which would tell you that the correct reply to a strong currency is to increase your money supply.

"The problem is that there appears to be a very large safe haven demand for Swiss Francs and as time passes the threat to impose a peg will weaken if it is not actually done. As it weakens unless there is an improvement in market conditions we will see demand for the Swiss Franc again and the extra 80 billion Swiss Francs will run out."

…and central banks should be independent

Shaun says on his blog: "I have made a case for all the main central banks no longer being independent at various times.

"To that list is fast being added the Swiss National Bank, although I do have some sympathy as it faces a task that is virtually impossible. One of the hardest things to do is to realise the limit of your abilities and admit to them."

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