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).
Austerity can only be implemented in the shadow of a concentration camp.
by Cyrille - Apr 12 24 comments
by DoDo - Apr 6 39 comments
by Cyrille - Apr 8 6 comments
by ARGeezer - Mar 31 10 comments
by Zwackus - Mar 29 8 comments
by aquilon - Apr 3 156 comments
by Xavier in Paris - Mar 27 5 comments
by ManfromMiddletown - Mar 20 66 comments
by Oui - Apr 16
by Cyrille - Apr 1224 comments
by Cyrille - Apr 86 comments
by DoDo - Apr 639 comments
by aquilon - Apr 3156 comments
by ARGeezer - Mar 3110 comments
by Zwackus - Mar 298 comments
by DoDo - Mar 279 comments
by Xavier in Paris - Mar 275 comments
by ManfromMiddletown - Mar 2066 comments
by DoDo - Mar 1818 comments
by ARGeezer - Mar 1737 comments