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 DoDo - May 1 18 comments
by Frank Schnittger - Apr 30 3 comments
by gmoke - Apr 28 7 comments
by Bernard - Apr 24 27 comments
by Frank Schnittger - Apr 27 12 comments
by Frank Schnittger - Apr 27 25 comments
by Frank Schnittger - May 4
by DoDo - May 118 comments
by Frank Schnittger - Apr 303 comments
by gmoke - Apr 287 comments
by Frank Schnittger - Apr 2712 comments
by Frank Schnittger - Apr 2725 comments
by Bernard - Apr 2427 comments
by gmoke - Apr 11
by Bernard - Apr 65 comments
by marco - Apr 430 comments