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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.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Sep 9th, 2011 at 10:29:39 AM EST
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