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If this move by the Swiss National Bank does not work, then it is only because the SNB does not move with sufficient determination.

The SNB can always, should it so desire, use open market operations to place a hard upper bound on the Swiss Franc's appreciation relative to any other currency it cares to name. That's one of the privileges that comes with being a central bank.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 11th, 2011 at 07:15:39 AM EST
[ Parent ]
In the current instance, that could be massively deflationary for the Eurozone.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Aug 11th, 2011 at 07:38:54 AM EST
[ Parent ]
If the Swiss central bank were able to increase the valuation of the €-Mark relative to the currencies of our trading partners, it would have a deflationary effect.

But (a) simply defending the existing exchange rate is neither inflationary nor deflationary and (b) they can't seriously affect our trade-weighted exchange rate even if they were to try. The Swiss Franc simply isn't a big enough currency. Any Franc/€-Mark exchange rate movement large enough to appreciably influence the Eurozone trade-weighted exchange rate is also large enough to cause politically unacceptable dislocations in Switzerland. And since the Swiss Franc is the currency under upwards pressure at the moment, the Swiss CB can always curtail such disruption.

It will be more interesting to see what happens if the Swiss CB fails to use the current upwards pressure to accumulate sufficient hard currency reserves to cover the inevitable exit from the Swiss Franc when the immediate panic subsides. Because then they will be defending against a potentially substantial depreciation of their currency.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 05:48:55 AM EST
[ Parent ]
People aren't buying the Swiss Franc because it's a groovy thing to do.  They are buying it for a perceived benefit which, in turn, can be measured or valued.  So the question becomes what, exactly, ARE they paying for that benefit?

Cutting to the chase: not much.  Certainly they are not paying the full price for the benefit although the Swiss economy is paying the full cost of the benefit.  Which argues the Swiss Franc is being bought below the (cost of production + profit) at this time, in these market conditions.  

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Fri Aug 12th, 2011 at 01:52:08 PM EST
[ Parent ]
... among the "not big enough to be a world reserve currency" currencies.



I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Aug 13th, 2011 at 12:27:23 PM EST
[ Parent ]
... courtesy Mr. X Porter.



I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Aug 14th, 2011 at 05:27:36 PM EST
[ Parent ]

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