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Swiss Central Bank Consideres Euro Peg

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http://www.ft.com/cms/s/0/c26d1f8e-c412-11e0-b302-00144feabdc0.html#axzz1V5ryWu00

Swiss central bank considers euro peg

By Peter Garnham

The Swiss National Bank, which has been waging battle to rein in the strength of the currency, has left open the possibility of pegging the Swiss franc to the beleaguered euro.

Thomas Jordan, vice-president of the SNB, said a temporary franc peg with the euro was within the range of options that policymakers might use to stem the Swiss franc’s strength. “Any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability,” he said.

Mr Jordan added that the central bank could employ other tactics, however, raising speculation that the central bank could impose penalty rates on non-resident franc deposits for the first time since the 1970s.

“We still have, at the moment, possibilities to make monetary policy more expansive without intervening in the Swiss franc,” he said.

The comments came after the SNB launched a fresh assault on what it has described as a “massively overvalued” franc on Wednesday by flooding the Swiss money market with liquidity to meet demand for the currency. The Swiss franc pulled back from record highs on Thursday after the bank’s latest action.

The Swiss franc has been driven higher in recent weeks as investors have sought a haven from concerns over eurozone and US government debt and worries over global growth.

The franc has risen more than 12 per cent against the euro over the past month, threatening to breach parity with the single currency and hitting a record high of SFr1.0094 earlier this week. It also hit an all-time peak of SFr0.7085 against the dollar on Tuesday after the Federal Reserve announced its intention to keep US interest rates at ultra low levels until 2013.

On Thursday, the Swiss franc dropped 4.6 per cent to SFr0.7614 against the dollar and lost 5.3 per cent to SFr1.0850 to the euro as investors digested Mr Jordan’s comments. That still left the franc higher against both currencies on the week, however.

So far, attempts by the SNB to rein in the franc have met limited success given that the source of demand for its currency remain outside its control and that the central bank appears unwilling to intervene directly in the market and sell the currency.

Simon Derrick, head of FX research at Bank of New York Mellon, said Mr Jordan’s comments on pegging the franc were academic, given the central bank’s recent failed attempts to devalue the currency.

The SNB received domestic criticism after a failed and expensive campaign to weaken the franc in 2009 and 2010, during which it registered a balance sheet loss of SFr21bn.

“There is only one thing that is going to send the Swiss franc lower and that is an improvement in sentiment and a recovery in stocks,” he said.

Robert Lynch, FX analyst at HSBC, said there were few desirable policy options left for the Swiss, but a peg to the euro was the worst of a bad lot.

He said a more plausible course of action for the SNB would be the imposition of a tax on foreign deposits in Switzerland, a move that might not only discourage additional inflows, but could even encourage some outflows from the country.

“These types of macro prudential measures have been more common among emerging market economies in recent years” he said. “But in an environment where monetary policy is nearly tapped out and FX intervention has been ineffective, it is something the markets view as somewhat more plausible, and is contributing to the current pullback in the Swiss franc.”

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that the central bank could impose penalty rates on non-resident franc deposits for the first time since the 1970s

Would that apply if you bought Swiss Francs in an ETF?

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Already discussed

http://www.housepricecrash.co.uk/forum/index.php?showtopic=167665&st=45

This is scary stuff, 10% a quarter?

Switzerland’s first taste of negative interest rates came in June 1972, when a penalty charge of 2% per quarter was levied on the increase in CHF deposits from non-residents (this measure followed the failure of 100% reserve requirements on nonresident deposits and then the prohibition of interest payments to non-residents to curb capital inflows). The defacto negative interest rate regime lasted until October 1973. The negative interest rate was re-introduced in November 1973 at 3% per quarter and then increased to 10% per quarter in February 1978.

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They'll switch from targeting three month LIBOR to targeting a EURCHF trading range (the way any other pre-ascension EU member would) in the end.

I'm not sure anyone yet fully appreciates the catastrophe which will result (as I've said before, it's easy enough to take liquidity when someone else is reloading the book - adding it on the other hand, at the rate required once this black hole opens... well... there's a horror which will be with us for generations to come).

Might* be a good time to borrow against Suisse assets.

(* it might not too - free, this "heard it in a forum" advice gig, and worth every penny)

Edited by ParticleMan

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The rumour is about a temporary peg. As far as I know the Swiss would have to hold a referendum to amend their constitution for a permanent peg.

Isn't Income tax temporary to pay for the Napoleonic wars? God it must have been one hell of an expensive war.

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Isn't Income tax temporary to pay for the Napoleonic wars? God it must have been one hell of an expensive war.

Which is why we complain so little about it. Worth every penny by God.

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  • 343 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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