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But sometimes having a floating currency of your own is not good enough for a small country.
We both know what happened.
So what did happen, in your own words?
And how would being in the -Mark have improved Switzerland's ability to handle it?
- Jake Friends come and go. Enemies accumulate.
And they introduced not a peg but ceiling. By printing money.
And they introduced not a peg but ceiling.
Switzerland can't unilaterally defend a peg, it can only unilaterally defend a ceiling. If you want a peg to the CHF, the ECBuBa needs to be willing to print money on demand, in whatever quantity required, to fix the lower bound of the /CHF exchange rate.
That's the only way you can ever defend a peg.
And the BuBa gave a quite instructive exposition on its attitude towards doing its part to defend European currency pegs back in 1993.
By printing money.
You say that like it's a bad thing.
You do understand that this is precisely what the SNB would have been doing if they were defending a peg rather than a ceiling, right?
The point of declaring a ceiling rather than a peg is that the SNB has not committed itself to defending the floor when the hot money leaves. Which means that it is free to expend its hard currency reserves in discretionary defense of strategically important imports, rather than handing it over to the first Soros wannabe who manages to short a hundred billion CHF.
Indeed:
16 September 1992-2 August 1993 Crises in the ERM. In 1992, investors lose confidence in the stability of the pound sterling, in particular, and then, in 1993, in the French franc, resulting in speculative selling of the pound and franc; in 1992, the United Kingdom and Italy leave the ERM; in 1993, the fluctuations margins around the bilateral central rates are expanded sharply. The Bundesbank with its commitment to price stability had refused to lower interest rates massively. The partner countries are forcibly reminded of their responsibility for their currencies; the process of convergence needed for monetary union is strengthened.
Crises in the ERM. In 1992, investors lose confidence in the stability of the pound sterling, in particular, and then, in 1993, in the French franc, resulting in speculative selling of the pound and franc; in 1992, the United Kingdom and Italy leave the ERM; in 1993, the fluctuations margins around the bilateral central rates are expanded sharply. The Bundesbank with its commitment to price stability had refused to lower interest rates massively. The partner countries are forcibly reminded of their responsibility for their currencies; the process of convergence needed for monetary union is strengthened.
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