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 Frank Schnittger - Aug 16 26 comments
by Cat - Aug 2 14 comments
by Helen - Aug 2 15 comments
by Frank Schnittger - Aug 8 53 comments
by Frank Schnittger - Aug 9 18 comments
by Oui - Aug 6 22 comments
by Frank Schnittger - Jul 17 147 comments
by Frank Schnittger - Jul 29 94 comments
by Frank Schnittger - Aug 181 comment
by Cat - Aug 181 comment
by Frank Schnittger - Aug 1626 comments
by Frank Schnittger - Aug 918 comments
by Frank Schnittger - Aug 853 comments
by Oui - Aug 622 comments
by Cat - Aug 214 comments
by Helen - Aug 215 comments
by Frank Schnittger - Jul 2994 comments
by Oui - Jul 265 comments
by Frank Schnittger - Jul 17147 comments