By promising to sell Swiss francs at a fixed euro rate to any buyer and in any amount, the Swiss National Bank is playing its last card to prevent the incessant rise of the national currency. As a midsized open economy, it is the victim of events and policy choices beyond its control. Even if the Swiss move could trigger a currency war, the SNB had little option but to act, decisively and radically.
Monetary stimulus in the US and Europe has filled investors’ pockets with cash they fear to place anywhere but in haven currencies or gold. The resulting 20-25 per cent appreciation of the franc has squeezed exporters till the pips have finally squeaked.
For a while the SNB tried to keep the franc down without giving up control over domestic monetary policy. In a world of mobile finance, that is at best an ephemeral outcome. Like the Bank of Japan’s interventions, the SNB’s attempts to have it both ways over the past year proved unsuccessful. It also stored up political trouble when the central bank’s purchases of foreign currency led to paper losses as the franc kept rising.