Switzerland's central bank has set a minimum floor for the Swiss franc to fight what it called the "massive overvaluation of the Swiss franc."
The Swiss National Bank said it has set a minimum exchange rate at 1.20 Swiss francs per euro.
The bank said the franc's overvaluation was an "acute threat to the Swiss economy and carries the risk of a deflationary development."
The Swiss franc weakened by 6.7% against the euro following the announcement. The euro traded recently at 1.1886 francs.
FX: Swiss Franc Collapses as SNB announces EUR/CHF Floor at 1.20
This is gonna be a fun day. Combined with the huge surge in gold and the decimation of European equities, VIX is gonna go crazy. Who thinks that the Swiss can actually defend a 1.20 exchange rate?
Will be interesting to see. I think they will get away with it, but for no reason other than noone will have the balls to see who will run out of money first.
No doubt the currency traders are salivating.
If anyone could pull it off, it'd be the Swiss.
Merkel's gotta be shitting her pants right now.
Wow, some people made a small fortune today:
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The Swiss own the printing press. This is like asking whether a company can keep its share price BELOW $20/share. Say everyone wants swiss francs. So they sell every single Euro, USD, etc, in existence to the Swiss Central Bank. Switzerland prints a bunch of 1000-franc notes for everyone. Now everyone else is out of Euros, USD, etc, and Switzerland still stands ready to sell francs for Euro 0.83
The problem is going to be whether the swiss can keep inflation under control. Lotta swiss consumers are going to be very unhappy. This is going to become a political/diplomatic issue before it becomes a "Central Bank can't fight the markets" issue.
Good time to buy Swiss real estate and finance it with a mortgage, IMHO.
I read this too. Would someone mind explaining the economics of this to me? From what I understand, exchange rates are determined by demand and supply. How would having a floor/ceiling change that? What happens if the Franc drops to 1.20/euro and there's still a lot of demand for it?
Sorry if I sound dumb.
Then the Swiss Central Bank keeps printing 1000 CHF notes until demand is satisfied.
If this continues to the extrema, the central bank has all of the world's currency, everyone has a bunch of CHF notes, and you could still cash 1 EUR in for 1.2 CHF if it were possible to find any outstanding.
you expand supply by printing more francs
is it me or is this really bullish for silver/gold?
Yes. Anyone who bought CHF thinking it was a good hedge against inflation is getting crushed. Now they have to move into precious metals since that can't be printed by the pols- at least until we figure out how to add protons to silver economically.
Really should be bullish for commodities in general- surprised oil is down today.
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