The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
Nobody has to "inflow" to use the CHF to play the "Financial Engineering" Game.
They do have to buy or borrow CHF if they don't have any to begin with. So they do create an inflow into the currency, even though they do not create one into the country.
Now, this can affect Switzerland in four ways: First, their buying of CHF can cause the CHF to climb relative to RoW. This is bad news for Swiss net exporters. Second, when they get tired of playing with the CHF they bought, they can exit their positions by buying stuff in Switzerland. That is not a serious problem for the Swiss unless they have very little slack in their economy, and even then only a minor problem. Third, they can exit their positions by buying other currencies with their CHF. This will be bad news for Swiss importers, including some net exporters. Fourth, they can move in and out of CHF in ways that increase the volatility of the exchange rate. This is bad for everybody except the noise traders.
The Swiss CB, meanwhile, can defend perfectly against the first effect if they want to. The second is not a serious problem. The fourth effect can be reduced by capping appreciation, which will simultaneously net the Swiss CB hard currency, at the "cost" of an overall net depreciation.
That leaves the third effect - a massive exit from CHF positions when the -zone crisis is resolved (one way or another). This, the Swiss CB can only defend against if they either (a) have considerably more hard currency than they need in order to simply pay out all those who wish to exit (since the Swiss CB can't distinguish between people exiting long positions and people shorting, so the latter can use the former to cover as they set up a Soros attack). Or (b) cut the balls off any Swiss bank that assists the attackers in shorting the CHF (since you need the cooperation of Swiss banks to create CHF for shorting).
Friends come and go. Enemies accumulate.
by car05 - Aug 27 1 comment
by marco - Aug 24 18 comments
by gmoke - Aug 17
by john_evans - Aug 18 25 comments
by Metatone - Aug 14 24 comments
by DoDo - Aug 11 91 comments
by Helen - Aug 3 29 comments
by car05 - Aug 271 comment
by marco - Aug 2418 comments
by john_evans - Aug 1825 comments
by gmoke - Aug 17
by Metatone - Aug 1424 comments
by DoDo - Aug 1191 comments
by Helen - Aug 329 comments
by Frank Schnittger - Jul 2246 comments