These Days it’s a Liability To Be So StableSeptember 6th, 2011
This was proven when the Swiss National Bank decided to peg its Swiss Franc to the Euro to protect the country’s successful economy. The Franc had been out-performing most currencies around the world, however their export-driven economy, that is supported by the deteriorating countries around them, was starting to see a dead-end road ahead. And not only have they set the floor of the Franc to 1.20 to the Euro (EBS), they also plan on buying “large quantities” of foreign currencies. Since Switzerland isn’t facing the ongoing debt-ciris that the rest of the Eurozone is, it appears that these quanitities will in fact be LARGE in order to maintain the fixed price on the Franc.
The Swiss National Bank, a small Swiss version of the Fed, has made these bold decisions to stabilize the economy and protect from deflation and a crash in their production and exports. Even when the Swiss Bank starts dishing out hundreds of billions of Francs, don’t think people will lose confidence in this almighty currency, little do they know what printing a bunch of money has done to other economies…*cough* *cough* The U.S.!
This is some of the hottest news yet in the foreign exchange markets…sure have the IMF bail out Ireland…but artificially setting the price of a stable country’s currency lower than it’s market value? Boy oh boy, we’ll see some wild unintended consequences from this one.
So currently in the markets the Swiss Franc is trading at 1.22 to the USD.
This inevitably vicious move made by the SNB wasn’t a surprise. External pressures of falling economies in the Eurozone and internal pressures of Switzerland’s successful, QE-free economy saw this economic decision coming around the corner. I enjoyed this perspective on the past two years leading up to this decision, READ IT.
See you with more on how this will effect the USD on Fed News Friday!